Our business cycle experiences suggest that a macroeconomic policy designed to lower the average rate of inflation will require ________ in actual real GDP and an accompanying ________ in the unemployment rate.
A)an increase,increase
B)an increase,decrease
C)a reduction,increase
D)a reduction,decrease

Question

Quizplus · Accepted Answer

When the policy is designed to lower the average rate of inflation, the reduction in inflation will lead to a reduction in spending and investment, causing a decrease in actual real GDP. This will result in an increase in the unemployment rate as businesses will be less likely to hire new employees during this time. Therefore, a reduction in real GDP and an increase in the unemployment rate is needed to achieve a lower rate of inflation, which is consistent with the choice C.

Our Business Cycle Experiences Suggest That a Macroeconomic Policy Designed