Stabilization policy often faces a trade-off between inflation and unemployment.

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Stabilization policy aims to reduce the volatility of the business cycle and promote economic growth. However, achieving these goals often involves a trade-off between inflation and unemployment. For example, expansionary monetary and fiscal policy can boost employment but may also lead to inflation, while contractionary policy can reduce inflation but may result in higher unemployment rates. Policymakers must weigh the costs and benefits of different policy options and make difficult trade-offs between these competing objectives.

Stabilization Policy Often Faces a Trade-Off Between Inflation and Unemployment