Ten Principles of Economics
Graded Assignment | Read Chapter 1 | Back to Assignment
Attempts: 1.8 Average: 1.8/2 Due Sunday 09.17.17 at 11:00 PM
8. Inflation and unemployment
Suppose that, in an attempt to combat severe inflation, the government decides to decrease the amount of money in circulation in the economy.
This monetary policy decreases the economy's demand for goods and services, leading to lower product prices. In the short run, the
change in prices induces firms to produce goods and services. This, in turn, leads to a lower level of unemployment.
In other words, the economy faces a tradeoff between inflation and unemployment: Lower inflation leads to unemployment.
