ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the following changes will necessarily cause inflation?
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A decrease in aggregate demand and a decrease in short-run aggregate supply.
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A decrease in aggregate demand and an increase in short-run aggregate supply.
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A decrease in aggregate demand with no change in short-run aggregate supply.
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An increase in aggregate demand and a decrease in short-run aggregate supply.
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An increase in aggregate demand and an increase in short-run aggregate supply.
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Explanation:
Detailed explanation-1: -Which of the following changes will necessarily cause inflation? An increase in aggregate demand and a decrease in short-run aggregate supply.
Detailed explanation-2: -Demand-pull inflation arises when the total demand for goods and services (i.e. ‘aggregate demand’) increases to exceed the supply of goods and services (i.e. ‘aggregate supply’) that can be sustainably produced.
Detailed explanation-3: -Which of the following will cause an increase in aggregate demand?-a decrease in the price level, which increases exports.
Detailed explanation-4: -But: higher inflation reduces competitiveness of exports. Result: Higher inflation leads to less aggregate demand.
There is 1 question to complete.