An increase in government spending is more likely to lead to higher inflation when
A) the unemployment rate is above the natural rate.
B) real GDP is above potential GDP.
C) the business cycle is near the trough.
D) the economy is in a recession.

Question

Quizplus · Accepted Answer

When the economy is not in a recession, the threat of inflation caused by increased government spending is greater.

An Increase in Government Spending Is More Likely to Lead