If the economy has substantial unemployment, then the inflationary costs of expansionary policy are likely to be:
A)low, and the unemployment gains minimal.
B)low, and the unemployment gains large.
C)high, and the unemployment gains minimal.
D)high, and the unemployment gains large.

Question

If the economy has substantial unemployment, then the inflationary costs of expansionary policy are likely to be:
A)​low, and the unemployment gains minimal.
B)​low, and the unemployment gains large.
C)​high, and the unemployment gains minimal.
D)​high, and the unemployment gains large.

Quizplus · Accepted Answer

When there is substantial unemployment, expansionary policy can increase employment significantly without causing much inflation, as there are idle resources (including labor) that can be utilized to increase output.

If the Economy Has Substantial Unemployment, Then the Inflationary Costs