Policymakers can affect inflation and unemployment in the short term by
A)eliminating externalities.
B)giving the central bank independence.
C)changing the amount that the government spends.
D)encouraging firms to think at the margin.

Question

Quizplus · Accepted Answer

Policymakers can affect inflation and unemployment in the short term by changing the amount that the government spends. By increasing government spending, aggregate demand increases, leading to an increase in employment and output in the short term. However, if the economy is already at full employment, this increased demand could lead to inflation.

Policymakers Can Affect Inflation and Unemployment in the Short Term