The short-run tradeoff between inflation and unemployment implies that,in the short run,
A)a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
B)an increase in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.
C)policymakers are able to reduce the inflation rate and,at the same time,reduce the unemployment rate.
D)policymakers can influence the inflation rate,but not the unemployment rate.

Question

Quizplus · Accepted Answer

According to the Phillips curve, there is an inverse relationship between unemployment and inflation in the short run. This means that a decrease in the growth rate of the quantity of money (which can be a policy measure to reduce inflation) will lead to an increase in the unemployment rate in the short run. Similarly, an increase in the growth rate of the quantity of money (which can be a policy measure to stimulate the economy) will lead to a decrease in the unemployment rate in the short run. Therefore, option A is the best choice. Option B is incorrect because an increase in the growth rate of the quantity of money is expected to reduce unemployment, not increase it. Option C is incorrect because policymakers face a tradeoff between inflation and unemployment in the short run and cannot reduce both simultaneously. Option D is incorrect because policymakers have tools to influence both inflation and unemployment rates, although the tradeoffs may differ in the short run and long run.

The Short-Run Tradeoff Between Inflation and Unemployment Implies That,in the Short