To fight inflation, the government may
A)decrease aggregate demand, which will also lead to lower unemployment rates.
B)increase aggregate demand, which will also lead to lower unemployment rates.
C)increase aggregate demand, which will also lead to higher unemployment rates.
D)decrease aggregate demand, which will also lead to higher unemployment rates.

Question

Quizplus · Accepted Answer

To fight inflation, the government may decrease aggregate demand through measures such as decreasing government spending, increasing taxes, or reducing the money supply. However, this will lead to higher unemployment rates as businesses may lay off workers due to reduced demand for their products and services. Therefore, choice D is the best option as it correctly indicates the tradeoff between fighting inflation and causing unemployment.

To Fight Inflation, the Government May