Which of the following describes the inflation-unemployment trade off? Question

Question

Which of the following describes the inflation-unemployment trade off? Question 21 options: a.Monetary policies that expand the money supply and lower interest rates will lower inflation and unemployment. b.Monetary policies that expand the money supply and raise interest rates will lower inflation and unemployment. c.Fiscal policies that increase government spending and lower unemployment will cause inflation. d.Fiscal policies that increase government spending and lower unemployment will lower inflation

Explanation / Answer

Inflation unemployment trade off is best explained by

Fiscal policies that increase government spending and lower unemployment will cause inflation.This is basically an expansionary fiscal policy which leads to an increase in the aggregate spending and hence an increase in overall output level.This leads to a decline in unemployment as more production requires more workers.At the same time increase in overall spending leads to increase in overall price level and hence iflation rate rises.Thus unemployment falls while inflatio rate rises.

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