"Last month unemployment fell to 4 percent, its lowest level in years. The economy is growing rapidly, but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

Question

Quizplus · Accepted Answer

Given the rapid economic growth and high inflation rate (10 percent annually), the most appropriate policy would be to cool down the economy. Increasing taxes can help achieve this by reducing disposable income, thereby slowing down consumer spending and helping to control inflation. Options A, C, and D would inject more money into the economy, potentially exacerbating inflation.

"Last Month Unemployment Fell to 4 Percent, Its Lowest Level