Answer to Question #63853 in Macroeconomics for steve rogers

Question

Suppose the United states experiences stagflation where price level and inflation increase. in the forex market, will the supply of usd increase due to an increase in imports of cheaper foreign goods, or will the supply decrease due to the increased unemployment?

Answer 1

I think, the basic idea is to decrease due to the increased unemployment, because it will cause cuts in public spending should reduce the government deficit and thereby limit the growth of the money supply, as a result, begin to decrease inflation. This activities of the government help the country to get out of the economic crisis.