Policy makers can affect inflation and unemployment in the short term by

Question

Quizplus · Accepted Answer

Changing the amount that the government spends can affect both inflation and unemployment in the short term. Increasing government spending can reduce unemployment by creating more job opportunities, but can also lead to inflation by increasing demand for goods and services. On the other hand, decreasing government spending may reduce inflation by decreasing demand and prices, but can also increase unemployment by reducing job opportunities. Eliminating externalities, giving the central bank independence, and encouraging firms to think at the margin may have long-term effects on the economy, but may not have a direct impact on inflation and unemployment in the short term.

Policy Makers Can Affect Inflation and Unemployment in the Short