A cost-push inflation spiral results if the Fedʹs response to stagflation is to keep
A) decreasing aggregate demand.
B) decreasing aggregate supply.
C) increasing aggregate supply.
D) increasing 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 as higher demand can exacerbate inflationary pressures without addressing the underlying supply issues.

A Cost-Push Inflation Spiral Results If the Fedʹs Response to Stagflation