An increase in the rate of inflation:
A) can only result from increases in aggregate demand.
B) can only result from upward shifts in the short-run aggregate supply curve.
C) will result only if the long-run aggregate supply curve is vertical.
D) can result from shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in the rate of inflation can result from shifts in either the dynamic aggregate demand curve (caused by increases in aggregate demand) or the short-run aggregate supply curve (caused by upward shifts in costs of production or reductions in the availability of key resources). The long-run aggregate supply curve being vertical only affects the long-run rate of inflation, not short-run fluctuations.

An Increase in the Rate of Inflation