Question

Can central banks increase output and reduce unemployment in the long run?

Can central banks increase output and reduce unemployment in the long run?

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Answer #1

As part of the monetary policy when there is high inflation observed in the country the central banks usually try to increase the money supply .The reasons are people tend to spend less owing to high inflation in the prices ,market produces less products as there is not much demand for exports from other countries. In this scenario the central bank aims to increase the money supply and enhances the production of market goods in the long run during which unemployment comes down .This acts as a counter to cynical growth and brings up employment.

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