If an administration pursues expansionary policy before an election to bring down unemployment, it can:
A) produce inflation only if the real interest rate is zero to begin with.
B) lower people's expectations about inflation through a sense of false complacency.
C) produce inflation if the targeted rate of unemployment is too low.
D) produce disinflation if the expansionary monetary policy is unanticipated.

Question

Quizplus · Accepted Answer

Pursuing expansionary policy before an election to bring down unemployment can lead to inflation if the targeted rate of unemployment is too low. This is because a low rate of unemployment can lead to increased demand for goods and services, which can drive up prices. If the expansionary policy aims to reduce unemployment below the natural rate, inflationary pressures may emerge.

If an Administration Pursues Expansionary Policy Before an Election to Bring