If the economy is fully employed, then the inflationary costs of expansionary policy are likely to be:
A)low, and the unemployment gains minimal.
B)low, and the unemployment gains large.
C)high, and the unemployment gains minimal.
D)high, and the unemployment gains large.

Question

If the economy is fully employed, then the inflationary costs of expansionary policy are likely to be:
A)​low, and the unemployment gains minimal.
B)​low, and the unemployment gains large.
C)​high, and the unemployment gains minimal.
D)​high, and the unemployment gains large.

Quizplus · Accepted Answer

If the economy is fully employed, expansionary policy will lead to an increase in aggregate demand, which will cause prices to rise (inflation) rather than increasing output or employment. The unemployment gains will be minimal as the labor market is already at full employment, but the inflationary costs will be high.

If the Economy Is Fully Employed, Then the Inflationary Costs