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Explain why government policies are designed to influence arrogate demand would require policymakers to choose between...

Explain why government policies are designed to influence arrogate demand would require policymakers to choose between inflation and unemployment.

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Policy makers always face a trade off between inflation and unemployment when they design policies that influence aggregate demand. This is because a when aggregate demand is stimulated there is an increase in the rate of inflation and a decrease in the rate of unemployment. When it is discouraged, there is a decline in the rate of interest and an increase in the rate of unemployment. This trade-off is also experienced under the Phillips curve and this is the reason why an economy that chooses a lower rate of inflation must bear then increased rate of unemployment and vice versa.

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