A negative shock to AD will cause the inflation rate to increase in:
A) the short run only.
B) the long run only.
C) both the short run and the long run.
D) neither the short run nor the long run.

Question

Quizplus · Accepted Answer

A negative shock to Aggregate Demand (AD) typically leads to lower inflation rates, as it indicates a decrease in the demand for goods and services, putting downward pressure on prices. This effect can be observed in both the short run and the long run, making the statement that it would cause inflation to increase incorrect for any time frame.

A Negative Shock to AD Will Cause the Inflation Rate