The given assertion is true. According to the Philips curve, policymakers can reduce both inflation and unemployment by increasing the money supply.
In the 1960s, it was thought that any fiscal stimulus would boost aggregate demand and start the subsequent consequences. Companies raise wages to compete and draw talent from a smaller talent pool as labor demand rises, the number of unemployed employees falls as a result, and unemployment rates decline. Corporate salary costs rise, and businesses pass those costs forward to customers by raising prices.
However, with the rise of stagflation in the 1970s, the consistent trade-off between inflation and unemployment collapsed, casting doubt on the Phillips curve's applicability.
The stagflation phenomena and the collapse of the Phillips curve prompted economists to examine expectations' involvement in the relationship between unemployment and inflation in greater detail.
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