In the short run, which of the following is not correct? Increasing the money supply increases the demand for goods and services. Increasing the money supply encourages firms to hire more workers. Lowering the money supply leads to a higher level of unemployment. Policies that encourage higher employment will also induce a lower rate of inflation.

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Business

Luka Shields

2 May, 00:24

In the short run, which of the following is not correct? Increasing the money supply increases the demand for goods and services. Increasing the money supply encourages firms to hire more workers. Lowering the money supply leads to a higher level of unemployment. Policies that encourage higher employment will also induce a lower rate of inflation.

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Answers (1)

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Dania Carrillo · Answer 1

Policies that encourage higher employment will also induce a lower rate of inflation.

Explanation:

This issue is primarily about the impacts of monetary policy, which is to increase or decrease the monetary base to contain inflation or stimulate the economy. The expansionary monetary policy aims to increase the monetary base. With more money in circulation, more transactions occur and entrepreneurs demand more jobs. As the economy warms up, inflation rises. That's why the last item is wrong. In the short term, monetary policy to raise the employment rate will also increase the inflation rate, not decrease it.