All the given conditions of the previous scenario, are dynamics associated with inflation, thus the correct answer is D) increased inflation
Full employment is a demand-pull effect of inflation, causing people to have more money to spend on goods, increasing the demand of products which will eventually lead businesses to raise prices, so supply and demand can be balanced. The increased liquidity created by federal funding for college works similar to the above.
On the other hand, war declarations cause a type of inflation called inflationary expectations. Businesses begin to raise prices not because of actual changes in supply or demand or the amount of money in circulation, but due to the fear that some such changes might happen.
