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High unemployment means the economy is performing well. (True or False)

High unemployment means the economy is performing well. (True or False)

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Answer #1

FALSE: High unemployment means the economy is performing well.

Explanation: According to Phillips Curve, in short run there is a negative relationship between unemployment and inflation. So, high unemployment is accompanied by lower inflation. The AD- AS model shows that the slow growth in aggregate demand cause both higher unemployment and lower inflation. Therefore, high unemployment means slow growth in aggregate demand, and it is an indicator which shows economy is not performing well.

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