Question

If you have done everything correctly, you might realize that stagflation creates a dilemma for the Fed. Why

Answer 1

Answer:

A. If the Fed wants to reduce inflation, it must be willing to accept higher unemployment.

B. If the Fed wants to reduce unemployment, it must be willing to accept more inflation.

Explanation:

When everything has done in correct manner than you realize that the stagflation develops a dilemma for the fed as in the case when fed wants to decrease the inflation so it would be accepted higher unemployment

And in the case when the fed wants to decrease the unemployment so he accept more inflation

as it creates a tradeoff between the inflation and unemployment in the short run as shown by the philips curve