As you haven't provided the graph to see your question clearly, I will explain the economic cycle to you to help you. An economy can experience moments of booms and recessions or slumps. In periods of booms, the economy is expanding, so that there is a high level of spending; investment, aggregate demand, and employment increase. However, when all the suitable resources are employed (including people who produce goods and services), prices tend to rise in order to stop a high demand. This leads to inflation and as people cannot buy goods, which is followed by a further fall in spending, firms begin to dismiss their employees during recession. Thus, boom tends to be associated with low unemployment, rising prices and profits, high level of spending. And recessions with high unemployment rate, high prices and a lack of investment and demand. So that, falling prices drive unemployment rates lower as demand increases as well as production so people to preduce is needed.
Answer:
D.) As unemployment rates rise, average prices fall.
just got it right on the test!
