Question

Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money.This monetary policy ______the economy's demand for goods and services, leading to ______ Incorrect product prices. In the short run, the change in prices induces firms to produce _______ goods and services. This, in turn, leads to a _____ level of unemployment.In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to ______ unemployment.

Answer 1

1. Increases

2. some

3. more

4. lower

5. lower

Step-by-step explanation:

The theoretical assumptions of the exercise are backed up on the theory of he Phillip's curve. Policy makers faces a trade-off between unemployement and inflation. A monetary expansion leads an increase in the demand of products and services, situation that rises the prices, phenomena that defines inflation. However, such boost in the demand push the production and employement.