Inflation and unemployment

Reference no: EM13689392

Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy.

This monetary policy 1.(decrease, increase)the economy's demand for goods and services, leading to 2. (Higher, lower) product prices. In the short run, the change in prices induces firms to produce 3. (fewer, more) goods and services. This, in turn, leads to a 4. (higher, lower) level of unemployment.

In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to 5. (higher, lower) unemployment.

Reference no: EM13689392

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