Hi, question on a very old 30 mark question, however, still relevant!
Discuss the view that, as an economy approaches full employment, inflation will inevitable accelerate. (Does this refer to the economy when we are at the natural rate of employment so there is no need to discuss ways in which the natural rate of unemployment and LRPC can shift? If so, do we are focus upon how rising unemployment such as a closing negative output gap and how this increases demand side and cost push inflation….?. Thus, would we’d discuss perhaps wage bargaining driving up costs as the labour pool reduces in size, adding cost push inflation? Then how growing confidence and more disposable income can cause demand side pressures so demand pull inflation etc? Then this can lead to the wage price spiral and just evaluation in the form of other components of aggregate demand that might not change e.g we might see a rise in AD however, if high propensity to consume imports then AD may not actually rise as much. Also, depends upon supply side of the economy e.g firms may respond to rising demand and actually invest more and they might have subsidies from the government and depends if the Government introduce supply side policies or not. Sorry, someone please help me I don't know if i'm right or totally wrong