According to the short-run Phillips curve, an increase in government spending aimed at reducing unemployment will lead to:
A) an increase in the rate of inﬂation.
B) an increase in the level of potential GDP.
C) a government budget surplus.
D) a decline in aggregate demand.

Question

Quizplus · Accepted Answer

The short-run Phillips curve suggests that policies aimed at reducing unemployment, such as increasing government spending, can lead to higher inflation. This is because increased demand from higher spending can push prices up when the economy is near or at full employment.

According to the Short-Run Phillips Curve, an Increase in Government