The Phillips Curve suggests that governments can reduce unemployment by increasing
A) taxes.
B) the price of oil.
C) unemployment insurance benefits.
D) the money supply.
E) wages.

Question

Quizplus · Accepted Answer

The Phillips Curve suggests that there is an inverse relationship between inflation and unemployment. Therefore, if the government increases the money supply (for example, through expansionary monetary policy), it can shift the aggregate demand curve to the right, which can decrease unemployment in the short run. However, this may also lead to higher inflation in the long run. Therefore, this solution is not perfect and must be used in conjunction with other policies. The other options listed are unlikely to decrease unemployment as they do not address aggregate demand.

The Phillips Curve Suggests That Governments Can Reduce Unemployment by Increasing