Question

Roasia is a developing economy with a large population. Its public healthcare and transportation infrastructure is very​ poor, which creates a bottleneck for industrial development. Leading industry experts have been claiming that investment in infrastructure so far has not been sufficient. According to​ them, there is a pressing need to step up government expenditure on public infrastructure. With the debate heating​ up, the government proposed a 30 percent increase in infrastructure investment this year. This is also expected to reduce unemployment considerably from the current level of 6 percent. With a 30 percent increase in​ investment, industry experts predicted that unemployment would decline from 6 to 4 percent in two​ years' time.​ However, the unemployment level at the end of two years was even lower at 3 percent. Which of the​ following, if​ true, can explain this​ outcome?
A. Industry experts in Roasa believe that only higher government expenditure can improve economic efficiency
B. Private healthcare in Roesia is very expensive
C. The current level of unemployment is also the economy's natural rate of unemployment
D. With increased government expenditure, the economy will move up along the short run Philips curve
E. Inflation is expected to fall in the coming years

Answer 1

Answer:

The correct answer is D. With increased government expenditure, the economy will move up along the short run Philips curve .

Explanation:

The measures taken in Roasia to combat the problem of unemployment are considered a necessary public expense for the improvement of industrial development and the generation of new jobs. When this situation occurs, the country's economic performance is expected to advance on the Phillips curve in a very short period of time.