Bartavia has two means by which it can conduct expansionary fiscal policy to promote even lower levels of unemployment through economic growth. To do this the government can cut taxes or increase spending by increasing the money supply for consumers. However, one of the ten principles of economics is that society faces a short-run trade-off between inflation and unemployment. Therefore, to reduce unemployment in the short run, Batavia will have to increase inflation. In addition to inflation, there are also other risks associated with implementing an expansionary fiscal policy that only targets unemployment. First, fiscal policy may not be able to influence unemployment in the long run, but only in the short run. Second, if the economy is subjected to a price shock in a major commodity, while inflation rises, this could lead to stagflation and a recession. Finally, there can be a significant delay in the time it takes for a policy to be implemented and have an effect on the economy. In the short run, the relationship between unemployment and inflation is inverse. This means that change in one will have the opposite effect on the other. So, in this case, a fiscal policy aimed at reducing unemployment will increase the interest rate. For example, if Bartavia decides to lower taxes to increase consumption by exploiting the marginal propensity to consume of consumers, and the economy in general through the multiplier effect, the aggregate demand for goods and services will increase. The marginal propensity to consume is the idea that consumers will spend more money if they have more, but increases in income do not lead to equal increases in consumption because people save some of their money. With this increase in aggregate demand, firms will have to produce more in order... middle of paper... at a higher price level if the firm fails to expand production to meet that demand. If there is no expansion by businesses, no additional employees will be able to be hired to reduce the unemployment rate. Therefore, you run a significant risk when trying to reduce unemployment in an economy operating at the frontier of its production possibilities. As an economic advisor to the Bartvavia leadership, I would not recommend attempting to adopt an expansionary fiscal policy aimed at reducing already low unemployment. The reasons are: any reduction will only be short-term and not long-term, the interest rate will likely remain higher when unemployment returns to its natural rate and there are risks that policy will only increase inflation which, if uncontrolled, it can lead to stagflation. and a recession. This is all due to the inverse relationship between unemployment and inflation.