An increase in inflation is likely to occur when government:
A)counters cost-push inflation with a stimulative fiscal policy or monetary policy.
B)adopts a hands-off approach to cost-push inflation.
C)increases aggregate supply by lowering nominal wages.
D)increases aggregate demand by raising nominal wages.

Question

Quizplus · Accepted Answer

When the government uses stimulative fiscal or monetary policy to counter cost-push inflation, it can increase aggregate demand, leading to higher inflation.

An Increase in Inflation Is Likely to Occur When Government