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If policymakers set a target for unemployment that is too low because it is less than the natural
rate of unemployment, this can set the stage for a higher rate of money growth and ____.
A) cost-push inflation
B) demand-pull inflation
C) cost-pull inflation
D) demand-push inflation
Answer: B
Diff: 2 Type: MC Page Ref: 614 - 615
Skill: Recall
Objective List: 25.3 Describe whether monetary policy should be activist or passive
Theoretically, one can distinguish a demand-pull inflation from a cost-push inflation by
comparing ____.
A) how fast prices rise relative to wages
B) the unemployment rate with its natural rate level
C) when prices rise relative to wages
D) government debt to real GDP
Answer: B
Diff: 2 Type: MC Page Ref: 614 - 615
Skill: Recall
Objective List: 25.3 Describe whether monetary policy should be activist or passive
Demand-pull inflation can result when ____.
A) policymakers set an unemployment target that is too high
B) a persistent budget deficit is financed by selling bonds to the public
C) a persistent budget deficit is financed by selling bonds to the central bank
D) workers get numerous wage increases
Answer: C
Diff: 2 Type: MC Page Ref: 614 - 615
Skill: Recall
Objective List: 25.3 Describe whether monetary policy should be activist or passive
Which of the following is least likely to lead to inflationary monetary policy?
A) Rising unemployment
B) Expanding federal budget deficits
C) Declining oil prices
D) Conflict in the Middle East
Answer: C
Diff: 2 Type: MC Page Ref: 614 - 615
Skill: Applied
Objective List: 25.3 Describe whether monetary policy should be activist or passive