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Imagine that you are a policymaker trying to decide whether to reduce the rate of

Chapter 1, Problem Problems and Applications 1.15

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QUESTION:

Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation. To make an intelligent decision, what would you need to know about inflation, unemployment, and the trade-off between them?

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QUESTION:

Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation. To make an intelligent decision, what would you need to know about inflation, unemployment, and the trade-off between them?

ANSWER:

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Inflation can occur due to high or excessive demand for goods or because of a shortage in supply due to a supply shock. This results in greater shoe-leather costs.  The value of the currency deteriorates if kept in hand.

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