"Last month unemployment fell to 4 percent, its lowest level in years. The economy is growing rapidly, but consumer prices have risen at an annual rate of 10 percent during the last six months." Which of the following policies would be most appropriate under these circumstances?

Question

Quizplus · Accepted Answer

The low unemployment rate and rapid economic growth suggest that the economy is operating close to or at full capacity, which can lead to inflationary pressures. The high consumer price increase confirms this. Increasing taxes would help reduce aggregate demand and slow down inflation. Options A and D would increase demand and exacerbate inflationary pressures. Option C would also increase demand and not help control inflation.

"Last Month Unemployment Fell to 4 Percent, Its Lowest Level