According to the AD-AS diagram, policy makers face a short-term trade-off between ________ when implementing anti-inflation policies.
A)long-term equilibrium and short-term equilibrium
B)inflation and expansion
C)recession and stagflation
D)inflation and unemployment

Question

Quizplus · Accepted Answer

In the AD-AS diagram we see that a tight monetary policy inflicts short-term pain in the form of higher unemployment (a decline in output)to achieve a long-term gain of a permanent reduction in inflation.

According to the AD-AS Diagram, Policy Makers Face a Short-Term