If the fluctuations in the economy's real growth rate from year to year are caused primarily by variations in the rate at which aggregate demand increases, then data would show the most rapid inflation occurs when

Question

Quizplus · Accepted Answer

Inflation typically accelerates when aggregate demand (AD) increases faster than the economy's ability to produce goods and services (output), leading to higher prices as demand outstrips supply. Conversely, when output grows slowly, it indicates that demand is not increasing as rapidly, which tends to result in lower inflation rates. This relationship aligns with the scenario where the most rapid inflation occurs when output grows most rapidly (due to high demand outpacing supply), and the lowest inflation occurs when output grows most slowly (indicating slower growth in demand).

If the Fluctuations in the Economy's Real Growth Rate from Year