Which of the following decreases inflation and increases unemployment in the short run?
A)Either a decrease in government expenditures by itself or a decrease in the money supply growth rate by itself.
B)A decrease in government expenditures, but not a decrease in the money supply growth rate.
C)A decrease in the money supply growth rate, but not a decrease in government expenditures.
D)Neither a decrease in government expenditures nor a decrease in the money supply.

Question

Quizplus · Accepted Answer

Both a decrease in government expenditures and a decrease in the money supply growth rate can lead to a decrease in inflation and an increase in unemployment in the short run. Decreasing government expenditures reduces aggregate demand, leading to lower inflation and potentially higher unemployment as demand for goods and services falls. Similarly, decreasing the money supply growth rate can increase interest rates, reduce investment and consumption, and thus decrease inflation and increase unemployment.

Which of the Following Decreases Inflation and Increases Unemployment in the Short