In a recovery phase,
A) the inflation rate rises.
B) although the price level rises, the inflation rate falls.
C) the price level falls.
D) the price level and the inflation rate fall.

Question

Quizplus · Accepted Answer

In a recovery phase, there is an increase in aggregate demand and output, which leads to a rise in prices. However, this rise in prices is not necessarily indicative of inflation, as inflation is a sustained increase in the overall price level. Therefore, although prices may rise in a recovery phase, the inflation rate can actually fall as long as the rate of increase in prices is lower than in previous periods.

In a Recovery Phase