If the Fed were to push unemployment below NAIRU, it is likely that:
A) inflation will increase.
B) deflation will send the economy into a deflationary spiral.
C) the dual mandate will be met.
D) the economy would be operating efficiently.

Question

Quizplus · Accepted Answer

NAIRU (Non-Accelerating Inflation Rate of Unemployment) is the level of unemployment at which the economy is operating at full potential and inflation is stable. If the Fed pushes unemployment below NAIRU, it means there is an excess demand for labor, which leads to wage increases and higher costs for firms. To maintain their profit margins, firms increase prices, leading to inflation. Therefore, pushing unemployment below NAIRU would likely result in inflation.

If the Fed Were to Push Unemployment Below NAIRU, It