In a situation of stagflation, the use of aggregate demand-oriented macro policy to address the problem of the rising price level would, at least in the short run, __________ the price level and __________ the level of output in the economy.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

In stagflation, both inflation and unemployment are high. Using aggregate demand-oriented policies like reducing government spending or increasing taxes would decrease demand, thus decreasing both the price level and output.

In a Situation of Stagflation, the Use of Aggregate Demand-Oriented