An unanticipated shift to a more expansionary macro-policy that leads to a higher-than-expected rate of inflation will
A) place downward pressure on prices.
B) temporarily reduce unemployment.
C) temporarily reduce output.
D) temporarily reduce the natural rate of unemployment.

Question

Quizplus · Accepted Answer

An expansionary macro-policy increases aggregate demand, which can temporarily reduce unemployment as firms hire more workers to meet higher demand, even if it leads to higher inflation.

An Unanticipated Shift to a More Expansionary Macro-Policy That Leads