Analysis of the short-run Phillips curve suggests that policymakers who want to reduce unemployment in the short run should ______ aggregate demand at a cost of generating ______ inflation.
A) increase; higher
B) increase; lower
C) decrease; higher
D) decrease; lower

Question

Quizplus · Accepted Answer

According to the short-run Phillips curve, there is an inverse trade-off between unemployment and inflation in the short run, which means that policymakers who want to reduce unemployment need to increase aggregate demand. However, increasing aggregate demand can lead to higher inflation in the short run. Therefore, the best choice is to increase aggregate demand at a cost of generating higher inflation, which is option A.

Analysis of the Short-Run Phillips Curve Suggests That Policymakers Who