Moving along a short-run Phillips curve, a reduction in the unemployment rate is achieved by
A) shifting the aggregate supply curve leftward.
B) running a federal budget deficit.
C) reducing the size of the labor force.
D) increasing the inflation rate.
E) increasing potential GDP.

Question

Quizplus · Accepted Answer

Moving along the short-run Phillips curve involves a trade-off between inflation and unemployment. To reduce unemployment, the economy needs to increase the inflation rate, which is achieved by stimulating aggregate demand through expansionary monetary or fiscal policy. Therefore, option D is the best choice as the others would have adverse effects on the economy.

Moving Along a Short-Run Phillips Curve, a Reduction in the Unemployment