If the Fed were to push unemployment below the NAIRU:
A) inflation would likely increase.
B) deflation would likely send the economy into a deflationary spiral.
C) the dual mandate will have been met.
D) the economy would be operating efficiently.

Question

Quizplus · Accepted Answer

NAIRU (Non-Accelerating Inflation Rate of Unemployment) is the unemployment rate at which there is no upward or downward pressure on inflation. If the Fed pushes unemployment below NAIRU, it means that the labor market is tight, and there is a shortage of workers. This would lead to increased demand for labor, which could result in wage inflation, causing firms to raise prices, leading to higher inflation. Therefore, the best choice is A, as inflation would likely increase.

If the Fed Were to Push Unemployment Below the NAIRU