What should the government do when faced with both rising unemployment and demand pull inflation?

I know that when there is rising unemployment, the government should increase spending or decrease taxes so that consumers & investors will spend more, improving the economy, lowering unemployment.

I also know that when there is rising demand pull inflation, the government should decrease spending or increase taxes so that consumers and investors spend less, causing demand pull inflation to decrease.

But what should the government do when faced with both?

I would also like to know... what is the government’s top priority? The well-being of the economy or stopping inflation?

Thanks!

In the 1970's the US faced this problem because of the increase in the price of oil. They tried almost everything and finally made inflation the priority in 1980 and produced very hing real interest rates and 10% unemployment rate by 1982 but inflation rate decreased. The recession and the conservation the reduced demand so oil prices also fell.

We need to keep inflation around 0% at all costs. You can always deal with unemployment by getting a job but you can't control what you pay for goods and services. Even now the inflation rate is unacceptable and the gov't should not be lowering interest rate but instead raising them. The reason the economy is the way it is is because of prices being too high and consumers are not spending. Have prices go down and consumers will start spending. Increased gov't spending compounds the problem because it sooner or later causes prices to go up which in turn causes people to spend even less. The gov't could create jobs by tearing down all gov't buildings and then hiring people to rebuild but is that what we want?????

Good question. The well-being of the economy overall is paramount because if there's a serious reduction in economic activity then inflation will be reduced as an effect thereof, but one of the aspects of economic well-being is low inflation and a stable currency. The government should rein in Entitlements - the biggest threat to our economy going forward - and restrain discretionary spending. Leave all of that money with the people, and both the recession and inflation will be abated in short order. Of course, we all know that won't happen, especially with a president who is modeling his time in office after the worst president in the history of the United States, FDR.

Also, meg, the asker asked specifically about demand-pull inflation. As you point out, we experienced a different type of inflation - cost-push - in the 1970s, which is much harder to cure, but that's not what the asker was discussing with this question.