If a country's policy makers were to continuously use expansionary monetary policy in an attempt to hold unemployment below the natural rate the long-run result would be ?
Correct answer: C. an increase in the rate of inflation
- A. an increase in the level of output
- B. a decrease in the unemployment rate
- C. an increase in the rate of inflation
- D. All of these answers
Explanation
Repeated expansionary monetary policy cannot permanently keep unemployment below its natural rate because expectations adjust upward. Its long-run effect is a higher and potentially accelerating inflation rate, while output and unemployment return to their natural levels.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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