Other things the same,a country that decides to reduce inflation will
A)have a higher unemployment rate in the short run and the long run.
B)have a higher unemployment rate only in the long run.
C)have a higher unemployment rate only in the short run.
D)not have a higher unemployment rate in either the short run or the long run.

Question

Quizplus · Accepted Answer

When a country decides to reduce inflation, it will typically use contractionary monetary policy, which involves reducing the money supply and raising interest rates. This will lead to a decrease in aggregate demand and therefore a decrease in output and employment in the short run. However, over the long run, this contractionary policy can help to reduce inflation expectations and restore confidence in the currency, which may actually lead to lower unemployment rates in the long run due to increased investment and economic growth. Therefore, while there may be short-run unemployment effects, in the long run, reducing inflation may not necessarily result in higher unemployment rates.

Other Things the Same,a Country That Decides to Reduce Inflation