If the economy is weak, then prices remain constant although unemployment rises. But unemployment rises only if inve...

Valentina July 22, 2020

Answer B Explanation

I'm having a hard time proving that UR ==> PC or not PC ==> not UR. How is this equation could be true? The video and other discussion replies have referred to the conclusion from the original stimulus, but how is it relevant to this hypothetical question? (sorry if I've misinterpreted!)

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shunhe July 22, 2020

Hi @Valentina,

Thanks for the question! So first let’s diagram the stimulus:

Economy weak —> Prices remain constant & Unemployment rises
Unemployment rises —> Investment decreases
~Investment decreases

And now we’re asked for something that must be false; in other words, there’s no way that the answer choice could be true. Take a look at (B), which tells us that if unemployment rises, then the prices remain constant. In other words

Unemployment rises —> Prices remain constant

Well, could this be true? We know that if the unemployment rises, then investment decreases. Do we know a relationship between investment decreasing and prices remaining constant? No, we don’t. So it’s perfectly possible that this statement could be true, and it’s perfectly possible that this statement could be false. We just don’t know which since we’re not given enough information about it. Since this statement doesn’t have to be false, it’s not the right answer. It only has to be false if it directly contradicts something in the stimulus, and it doesn’t contradict anything, even if it’s not supported by anything either.

Hope this helps! Feel free to ask any other questions that you might have.