The Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:
A)unemployment may actually increase because of the crowding-out effect.
B)tax revenues may increase even though tax rates have been reduced.
C)inflation may result.
D)the natural rate of unemployment may fall.

Question

Quizplus · Accepted Answer

The Phillips Curve suggests an inverse relationship between unemployment and inflation. Therefore, if the government uses expansionary fiscal policy to stimulate output and employment, it may result in increased inflation as there is an increased demand for goods and services. This occurs due to increased government spending, leading to an increase in the money supply, and hence, inflation.

The Phillips Curve Suggests That, If Government Uses an Expansionary