If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and
A)cost-push inflation.
B)demand-pull inflation.
C)cost-pull inflation.
D)demand-push inflation.

Question

Quizplus · Accepted Answer

Setting a target for unemployment below the natural rate of unemployment can lead to demand-pull inflation as there will be an increase in demand for goods and services without a corresponding increase in supply, leading to upward pressure on prices. To combat unemployment rates below the natural rate, policymakers often increase the money supply to stimulate economic growth, but if the target is set too low, this can lead to higher inflation. Cost-push and demand-push inflation are not as likely in this scenario.

If Policymakers Set a Target for Unemployment That Is Too