If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment,then:
A)the potential GDP will decrease.
B)the potential GDP will increase.
C)the only lasting impact of the policy is a higher price level.
D)the only lasting impact of the policy is higher real GDP.
E)the only lasting impact of the policy is lower real GDP.

Question

Quizplus · Accepted Answer

Attempting to decrease unemployment below the natural rate through increased aggregate demand typically results in inflation without a lasting decrease in unemployment, leading to a higher price level as the primary lasting effect.

If Fiscal Policy Makers Increase Aggregate Demand in an Attempt