In the short run, the Federal Reserve faces a tradeoff between

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In the short run, the Federal Reserve faces a tradeoff between inflation and unemployment, known as the Phillips curve. If the Fed increases the money supply, it can lower interest rates and increase investment, leading to higher output and employment in the short run. However, this can also lead to higher inflation if the economy is already at or near full employment. On the other hand, if the Fed decreases the money supply to combat inflation, it can lead to higher unemployment in the short run. Therefore, the Fed must choose the appropriate level of monetary policy to balance these two concerns.

In the Short Run, the Federal Reserve Faces a Tradeoff