10. Inflation and unemployment 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.

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Ireland Kane

26 January, 15:18

10. Inflation and unemployment 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.

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Ann Barker · Answer 1

Answer: Increase in money in circulation will increase Demand and Inflation will go up which will eventually lead to lower levels of unemployment in the short term.

Explanation: Governments through out the world Implements certain policies which may be a short term or long term policy to control or regulate the Economy. Most of the policy is to ensure that the Economy runs in an equilibrium, which means Demand will be similar to supply etc.

When the volume of money is Increased, it will lead to increase Demand for goods and services which will cause inflation to rise and unemployment rate will reduce.