In the long-run, the attempt to correct slow economic growth or the unemployment caused by cost-push inflation by implementing an expansionary fiscal policy will most likely produce:
A)disinflation.
B)a recession.
C)a price level surprise.
D)inflation

Question

Quizplus · Accepted Answer

Implementing an expansionary fiscal policy, such as increasing government spending or cutting taxes, will increase aggregate demand which can lead to higher prices, otherwise known as demand-pull inflation. This is particularly true if the economy is already operating at or near full employment. Therefore, the most likely outcome of implementing such a policy in response to cost-push inflation or slow economic growth is further inflation.

In the Long-Run, the Attempt to Correct Slow Economic Growth