A cost- push inflation spiral results if the Fed's response to stagflation is to keep
A) increasing aggregate supply.
B) decreasing aggregate supply.
C) increasing aggregate demand.
D) decreasing aggregate demand.

Question

Quizplus · Accepted Answer

If the Fed responds to stagflation by increasing aggregate demand, it can lead to a cost-push inflation spiral. This is because increasing aggregate demand in the face of reduced supply (stagflation) can exacerbate inflationary pressures, leading to higher prices without addressing the underlying supply issues.

A Cost- Push Inflation Spiral Results If the Fed's Response