A government faces rising inflation and decides to decrease its spending significantly. As a result, the economy experiences a reduction in aggregate demand. How is this action expected to influence the short-run Phillips curve, and what might be the implications for unemployment in the short term?

When a government decreases its spending to control rising inflation, it reduces the overall demand for goods and services in the economy. This action shifts the aggregate demand curve to the left, leading to lower prices and inflation in the short run. However, as demand decreases, businesses may produce less and may need fewer workers, which can result in higher unemployment. For example, if a government cuts funding for infrastructure projects, construction workers might lose their jobs due to less work available. Therefore, while inflation may decrease, unemployment is likely to rise in the short term as the economy adjusts to the new spending levels.