Which one of the following statements is TRUE?
A) Inflation but not deflation can occur even under conditions of full employment.
B) Deflation but not inflation can occur even under conditions of full employment.
C) Inflation or deflation can occur even under conditions of full employment.
D) Inflation can occur even under conditions of full employment only in the long run.
E) Inflation does not coincide with periods of high unemployment levels.

Question

Quizplus · Accepted Answer

Inflation or deflation can occur even under conditions of full employment. The level of employment does not directly affect the price level, as inflation can occur due to an increase in demand or a decrease in supply of goods and services. Similarly, deflation can occur due to a decrease in aggregate demand or an increase in aggregate supply, even in a situation of full employment.

Which One of the Following Statements Is TRUE