Policymakers

Question

Policymakers

Quizplus · Accepted Answer

Policymakers can use expansionary monetary or fiscal policies to reduce unemployment in the short run, but this often results in higher inflation. However, in the long run, the tradeoff disappears and policies that aim to reduce inflation may also ultimately reduce unemployment. This is known as the Phillips Curve relationship, but it is only applicable in the short run. Therefore, policymakers can exploit the tradeoff between inflation and unemployment in the short run, but not in the long run.