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.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Macroeconomics
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.
Practise Macroeconomics
1,499 free Macroeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Macroeconomics questions
The original Phillips curve illustrates ?
Along a short-run Phillips curve, ?
According to the Phillips curve, in the short run, if policy makers choose an expansionary policy to lower the rate of unemployment ?
If the sacrifice ratio is five, a reduction in inflation from 7 percent to 3 percent would require ?
The natural rate hypothesis argues that ?
When actual inflation exceeds expected inflation ?