Question: 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.
This monetary policy_________the economy's demand for goods and services, leading to______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.