Question

What do these graphs indicate about the relationship between employment levels and prices during economic cycles? There is no link between prices and unemployment. Rising unemployment rates drive prices higher. Falling prices drive unemployment rates lower. As unemployment rates rise, average prices fall.

Answer 1

D. As unemployment rates rise, average prices fall.

Answer 2

The relationship between employment levels and prices during economic cycles that's shown by the graph is D. As unemployment rates rise, average prices fall.

It should be noted that demand has an influence on the increase or decrease in the price of a product. In this case, an increase in demand will lead to an increase in the price of a product.

On the other hand, a reduction in demand will lead to a reduction in price. Therefore, when there's an increase in the unemployment rate, there'll be a reduction in the number of goods demanded by people and therefore, the average prices will fall.

Therefore, as unemployment rates rise, average prices fall.

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