If a country's policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate, the long-run result would be

Question

Quizplus · Accepted Answer

Continuously using expansionary monetary policy to hold unemployment below the natural rate would lead to an increase in the rate of inflation in the long-run, but it may not necessarily increase the level of output or decrease the unemployment rate. Eventually, inflation will lead to higher nominal wage rates, causing an increase in production costs and reducing the competitiveness of domestic products in international markets. This, in turn, could lead to a decrease in the level of output and an increase in the unemployment rate. Therefore, the best answer is C - an increase in the rate of inflation.

If a Country's Policy Makers Were to Continuously Use Expansionary