Question

2. Do you think the government, using both fiscal policy and monetary policy, faces any trade-offs in trying to control for inflation vs. unemployment. What do you believe is more of a problem towards long-term economic growth: persistent inflation or unemployment? Make sure to use your readings and what you learned in the modules to justify your arguments. please type answer

Answer 1

Yes, government while using the fiscal or the monetary policy face a trade off between the employment and the inflation in the market. If the government wants to decrease the inflation in the market they have to adopt an contractionary fiscal policy, this will reduce the inflation in the market but surely will increase the unemployment, on the other hand, if they want to increase the employment and decrease the unemployment in the market, they will have to increase the expenditure , cut taxes and that will increase the inflation in the market.

In the long run, the employment is at the natural rate and any expansionary or contractionary policy will not change that are the wages and other factors are very flexible, An increase in the expenditure in the long run will only increase the inflation in the market not affecting the unemployment rate.