A solution to the simultaneous emergence of deflation and unemployment is to use policies that shift the aggregate
A) supply curve to the right.
B) demand curve to the right.
C) supply curve to the left.
D) demand curve to the left.

Question

Quizplus · Accepted Answer

Shifting the aggregate demand curve to the right would increase output and prices, which would reduce deflation and also create more jobs and reduce unemployment. This is a better solution than shifting the aggregate supply curve, which would increase output but reduce prices (and potentially worsen deflation) while having ambiguous effects on unemployment. Shifting the aggregate demand curve to the left would exacerbate both deflation and unemployment.

A Solution to the Simultaneous Emergence of Deflation and Unemployment