In the long run, what event(s) can lead to an increase in inflation without changing the unemployment rate above its natural level?
A)a tax decrease combined with a government spending decrease
B)an increase in government spending combined with restrictive monetary policy
C)an adverse supply shock
D)an adverse supply shock accommodated by expansionary monetary policy
E)a favorable supply shock

Question

Quizplus · Accepted Answer

An adverse supply shock can initially increase inflation due to higher production costs. If this is accommodated by expansionary monetary policy, the increased money supply can further fuel inflation without necessarily reducing unemployment below its natural level, as the policy aims to offset the negative output effects of the shock.

In the Long Run, What Event(s) Can Lead to an Increase