The traditional Phillips Curve suggests that, if government uses an expansionary ﬁscal policy to stimulate output and employment,
A) unemployment may actually increase because of the crowding-out effect.
B) tax revenues may increase even though tax rates have been reduced.
C) the inﬂation rate will increase.
D) the natural rate of unemployment may fall.

Question

Quizplus · Accepted Answer

The traditional Phillips Curve suggests that there is a trade-off between unemployment and inflation, so using expansionary fiscal policy to stimulate output and employment is likely to increase the inflation rate.

The Traditional Phillips Curve Suggests That, If Government Uses an Expansionary