In a situation of stagflation, the use of aggregate demand-oriented macro policy to address the problem of unemployment would, at least in the short run, __________ the price level and __________ the level of output in the economy.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

Stagflation is characterized by high inflation and high unemployment. Aggregate demand-oriented policies, such as increasing government spending or cutting taxes, aim to boost economic activity. In the short run, these policies would increase the price level due to the inflationary pressures and increase the level of output as the economy responds to the higher demand.

In a Situation of Stagflation, the Use of Aggregate Demand-Oriented