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5. What is meant by the short-run inflation-unemployment trade-off in the context of fiscal and monetary...

5. What is meant by the short-run inflation-unemployment trade-off in the context of fiscal and monetary policy?

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Whenever there is an expansion in the monetary or fiscal policy, it is expected that the aggregate demand curve shifts to the right, and this increases the rate of inflation as well as the output level. But at the same time the level of unemployment falls. Due to this reason it is observed that whenever there is an increase in the rate of inflation in the short run there is a decline in the unemployment level. This causes a trade-off between the inflation rate and the unemployment rate, when one increases the other decreases.

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