A central bank strongly committed to fighting inflation will cause increasing unemployment if the economy is currently producing above full employment.

Question

Quizplus · Accepted Answer

If the economy is already producing above full employment, attempting to fight inflation by further tightening monetary policy will reduce aggregate demand and cause unemployment to increase. This is because there will be less demand for goods and services, forcing firms to reduce production or cut jobs.

A Central Bank Strongly Committed to Fighting Inflation Will Cause