If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment,then
A)the potential GDP level will decrease
B)the potential GDP level will increase
C)the only lasting impact of the policy is a higher price level
D)the only lasting impact of the policy is greater real GDP
E)the only lasting impact of the policy is lower real GDP

Question

Quizplus · Accepted Answer

Increasing aggregate demand to reduce unemployment below the natural rate can lead to inflationary pressures, resulting in a higher price level as the only lasting impact, without affecting potential GDP.

If Fiscal Policy Makers Increase Aggregate Demand in an Attempt