A demand- pull inflation spiral results when
A) the economy experiences a one- time jump in the price level.
B) aggregate demand increases, the Federal Reserve does not increase the quantity of money, and so the economy corrects the resulting inflationary gap on its own.
C) aggregate demand increases and the economy corrects the resulting inflationary gap, but aggregate demand continues to increase because the Federal Reserve continues to increase the quantity of money.
D) aggregate supply decreases, the Federal Reserve corrects the resulting recessionary gap by increasing the quantity of money and the supply shocks then stop.

Question

Quizplus · Accepted Answer

A demand-pull inflation spiral occurs when aggregate demand increases, causing an inflationary gap. However, if the Federal Reserve continues to increase the quantity of money, aggregate demand may continue to increase, leading to further inflationary pressure. This creates a spiral where inflation feeds into further increases in aggregate demand and vice versa.

A Demand- Pull Inflation Spiral Results When