If the economy is at full employment, inflation will result if:
A) net exports go from a positive to a negative number.
B) government purchases and transfers are less than taxes.
C) injections into the spending stream exceed leakages from the spending stream.
D) expectations of future conditions cause households to delay current purchases.

Question

Quizplus · Accepted Answer

When injections into the spending stream exceed leakages, it means that more money is being put into the economy than is being taken out. At full employment, this excess demand can lead to inflation as the supply of goods and services cannot increase to match the increased demand, leading to higher prices.

If the Economy Is at Full Employment, Inflation Will Result