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

Question

Quizplus · Accepted Answer

If the Reserve Bank responds to stagflation by increasing aggregate demand, it can lead to a cost-push inflation spiral. This is because increasing demand in the face of supply-side constraints (like higher production costs) can exacerbate inflation without addressing the underlying supply issues.

A Cost- Push Inflation Spiral Results If the Reserve Bank's