If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run
A)both the unemployment rate and the inflation rate would be lower.
B)the unemployment rate would be lower and the inflation rate would be higher.
C)the unemployment rate would be higher and the inflation rate would be lower.
D)the unemployment rate and the inflation rate would be higher.

Question

Quizplus · Accepted Answer

In the long run, contractionary monetary policy reduces inflation by reducing aggregate demand. A lower minimum wage reduces the cost of labor, which increases aggregate supply. The combination of these two policies would lead to lower inflation and lower unemployment in the long run.

If the Government Reduced the Minimum Wage and Pursued Contractionary