Economics: The Basics 1st Edition by Mike Mandel

Exercise 4

Suppose you knew that the NAIRU (the nonaccelerating inflation rate of unemployment) was 5 percent. The current unemployment rate is 4.5 percent.
a) Is an increase in government spending more likely to increase output or to increase prices?
b) Now the unemployment rate rises to 6 percent, but the NAIRU stays the same. Is an increase in government spending more likely to increase output or to increase prices?