ake a Test-Laken Smith Internet Explore ECO 202- Miller 18e-8521 1154 -R. Smith

Question

ake a Test-Laken Smith Internet Explore ECO 202- Miller 18e-8521 1154 -R. Smith 4162 Laken Smith 73016 10:52 AM Test: Exam III Time Remaining: 01:36.21 Submt Test This Question: 2 pts 2of41(o compiete) | This Test: 106 pts possible Refer to the figure at night Suppose the natural rate of unemployment is 5 percent t the govemment tied to reduce unemployment to 4 percent and keep it there, ur O A. use contractionary foscal and expansionary monetary policy B. generate higher andhigher rflation rates or else people wilahstther behavior and the unemployment rate will return to 5 pencent O C. accept a permanent inlation rate of 1 percent O D. raise unemployment benefits D. "ane unemployment ben 16 mple Tests ample Cper 1.A

Explanation / Answer

Option (A).

An expansionary monetary policy will increase money supply, raise aggregate demand which in turn will generate employment and reduce unemployment rate. But it will also increase inflation, to prevent which, a contractionary fiscal policy will be set at the same time, which will lower the inflationary pressure and keep inflation rate unchanged.

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