Question

The graphs show the US unemployment rate and the price of whole milk between 2006 and 2012. What do these graphs indicate about the relationship between employment levels and prices during economic cycles?

Answer 1

Answer:

As unemployment rates rise, average prices fall.

Explanation:

D. It is RIGHT

Answer 2

The economic cycles consist on different periods, from booms to recessions or slumps. During booms production tends to increase, firms tend to further invest to meet the increasing demand, they even invest in labor force, which constitutes part of the capital of any company. However, the economy reaches a point in which demand outpaces production, and as they have all resources working at full capacity, they tend to raise prices seeking to reduce that demand. As people cannot afford good and services, firms stop investing and as a result production falls, so that they do not need their employees, so unemployment rate rises as a result of dismissals. This is known as recession or contraction of the economy. To sum up, the graphs should depict an increase in unemployment rates when prices are high, and a low unemployment rate when prices are low.