The two main types of inflation are cost-push inflation and demand-pull inflation. A general rule of thumb is that cost-push occurs when the unemployment rate is higher than the natural rate, while demand-push inflation occurs when unemployment is lower than the natural rate. In this case, policymakers believe that the natural rate is 5% when it is 4%. Policymakers believe that the natural rate is higher than it is, so it is likely that they will work to decrease it. Once the natural rate diminishes, policymakers will pursue a stabilization policy to avoid possible demand-pull inflation. In order to avoid demand-pull inflation, a contractionary policy that will lead to reductions in government spending. These attempts to stabilize the economy could easily backfire and lead to an economic downfall in an already existing recession which can be very harmful. Aggregate demand will start to shift to the left as a result of these actions. Price levels will also decrease, and the supply produced will be less and less. This is also going to affect the unemployment rate negatively. Graphically we would see everything shift either to the left or down since price levels, supply demanded, and quantity demanded would decrease. It would be very tough to recuperate from such heavy economic deflation.