Fiscal Expansion at Full Employment Causes Inflationary Pressure

Steps:

• Increased government spending shifts aggregate demand (AD) rightward.
• At full employment, short-run aggregate supply (SRAS) cannot expand output significantly, raising prices and inflation.
• In the long run, higher spending raises interest rates, crowding out private investment and keeping output at potential but at elevated price levels.
• Education spending's supply-side benefits emerge slowly, insufficient to offset demand pressure immediately or fully.

Why B is correct:

• Demand-pull inflation occurs in short run per AD-AS model; long-run crowding out sustains higher prices without boosting potential output quickly, per loanable funds theory.

Why the others are wrong:

• A: Long-run supply shift from education is delayed, not making low inflation more likely.
• C: Short-run demand boost makes low inflation less, not more, likely.
• D: Demand pressure reduces low inflation odds in both runs.

Final answer: B