What happens to unemployment when aggregate demand increases in the short run?
A. Unemployment rises
B. Unemployment falls
C. Unemployment stays the same
D. There is no connection between the two
Answer (1)
The correct answer is B. When aggregate demand increases, businesses get more orders and need to produce more. To meet this demand, they often hire more workers, so unemployment decreases. For instance, when the Philippine economy reopened in 2022, restaurants, malls, and factories hired more workers, reducing unemployment rates. However, this may also push prices up if demand rises too fast—leading to inflation.
