If the government uses expansionary, monetary, or ﬁscal policies to counter the output effects of cost-push inﬂation, then the economy is likely to experience
A) a decline in nominal wages.
B) an inﬂationary spiral.
C) a recession.
D) disinﬂation.

Question

Quizplus · Accepted Answer

Expansionary monetary or fiscal policies used to counteract the output effects of cost-push inflation can lead to an inflationary spiral. This is because such policies increase demand, which can push prices even higher when the initial problem was rising costs.

If the Government Uses Expansionary, Monetary, or ﬁScal Policies to Counter