Illustrate what happens to inflation is indeterminate

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Reference no: EM1350241

It has been argued that higher inflation causes business firms to become permanently less efficient because they now have more pricing power. If this were true and economic output was initially at its potential level, then compared to the standard model, a fiscal expansion would cause:

a. Disinflation.

b. Higher inflation than in the standard model.

c. Lower inflation than in the standard model.

d. Illustrate what happens to inflation is indeterminate; it could be either higher or lower than in the standard model.

Reference no: EM1350241

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