In the long-run, any inflation that occurs in the economy is the result of:
A)the reduction in the rate of increase in money supply.
B)the growth of aggregate supply.
C)the growth of aggregate demand.
D)the growth of real GDP.

Question

Quizplus · Accepted Answer

In the long-run, inflation is caused by the growth of aggregate demand in excess of the growth of aggregate supply. As demand for goods and services increases, prices rise, leading to inflation. This is often the result of factors such as an increase in consumer spending, government spending, or exports. A reduction in the rate of increase in money supply (A) or the growth of real GDP (D) may help stabilize prices, but they do not necessarily prevent inflation from occurring if aggregate demand continues to grow at a rapid pace. The growth of aggregate supply (B) may help moderate prices, but it does not directly address the root cause of inflation, which is excessive demand.

In the Long-Run, Any Inflation That Occurs in the Economy