If an economy is at full employment and the government increases its purchases, the result will likely be:
A) cost-push inflation.
B) demand-pull inflation.
C) an increase in cyclical unemployment.
D) an increase in frictional unemployment.

Question

Quizplus · Accepted Answer

When an economy is at full employment and the government increases its spending, it leads to an increase in aggregate demand. Since the economy is already at its full capacity, this additional demand tends to push prices up rather than increasing output, leading to demand-pull inflation.

If an Economy Is at Full Employment and the Government