Which statement best describes the relationship between inflation and unemployment?
A) In the short run, reducing inflation is associated with falling unemployment.
B) In the short run, reducing inflation is associated with rising unemployment.
C) In the long run, reducing inflation is associated with falling unemployment.
D) In the long run, reducing inflation is associated with rising unemployment.

Question

Quizplus · Accepted Answer

In the short run, reducing inflation is typically associated with rising unemployment because central banks often use contractionary monetary policy, such as raising interest rates, to lower inflation. This can slow down economic growth and cause firms to hire fewer workers, thus increasing unemployment. However, in the long run, reducing inflation can lead to lower unemployment as it can improve business confidence, increase investment, and stimulate economic growth.

Which Statement Best Describes the Relationship Between Inflation and Unemployment