According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment ?
Correct answer: A. The economy will experience an increase in inflation
- A. The economy will experience an increase in inflation
- B. The economy will experience a decrease in inflation
- C. Inflation will be unaffected if price expectations are unchanging
- D. None of these answers
Explanation
In the short run, expansionary policy raises aggregate demand, increasing output and inflation while reducing unemployment. This inverse inflation-unemployment relationship is the short-run Phillips-curve trade-off.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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