Which of the following best describes the policy dilemma faced by a central bank during a period of stagflation?

Options:

• A: Increasing government spending to boost employment will directly reduce the money supply.
• B: Lowering reserve requirements will control cost-push inflation but will lead to a sharp appreciation of the domestic currency.
• C: Implementing price controls will increase aggregate demand, leading to a sudden drop in the unemployment rate.
• D: Raising interest rates to curb inflation may worsen economic stagnation and unemployment, while lowering rates to boost growth may further fuel inflation.

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