According to the Aggregate Demand Aggregate Supply diagram, policy makers face a short-term trade-off between _________ when implementing anti-inflation policies.
A) long-term equilibrium and short-term equilibrium
B) inflation and expansion
C) recession and stagflation
D) inflation and unemployment

Question

Quizplus · Accepted Answer

Feedback In the Aggregate Demand Aggregate Supply diagram we see that a tight monetary policy inflicts short-term pain in the form of higher unemployment (a decline in output) to achieve a long-term gain of a permanent reduction in inflation.

According to the Aggregate Demand Aggregate Supply Diagram, Policy Makers