Answer to Question #94444 in Macroeconomics for Nomthandazo

Question

if an economy is experiencing high inflation rate and high unemployment rate simultaneously, an appropriate policy move would be to...
(1) apply an expansionary monetary policy
(2) let the market forces work without any intervention
(3) implement an income policy
(4) apply a restrictive fiscal policy

Answer 1

(3) implement an income policy

Income policy refers to the government collective effort of controlling labor and capital incomes mostly by limiting the increases in prices and wages. It often refers to those policies which are directed at controlling inflation and can also indicate the efforts which alter income distribution among industries, locations, workers, or occupational groups. By altering income distribution, there will possibility of people being absorbed in the labor market which will then reduce the level of unemployment. Also by limiting increases in prices, the level of inflation in the economy will be reduced.