An increase in aggregate demand will reduce the unemployment rate only if the ensuing inflation is anticipated.

Question

Quizplus · Accepted Answer

An increase in aggregate demand can lead to a reduction in unemployment rate, irrespective of whether inflation is anticipated or not. However, if the increase in aggregate demand results in an unanticipated increase in inflation, it may have negative impacts on the economy, such as reducing the supply of goods and services and increasing production costs. Therefore, while an increase in aggregate demand can stimulate economic growth and increase employment, it is important to manage inflationary pressures through appropriate policies.

An Increase in Aggregate Demand Will Reduce the Unemployment Rate