Inflation can be caused either by rapid growth rate of aggregate demand or by sluggish growth of aggregate supply.

Question

Quizplus · Accepted Answer

This statement is true. Inflation can be caused by an increase in aggregate demand (such as increased consumer spending, government spending, or investment) that outpaces the growth of the economy's productive capacity, causing prices to rise. Alternatively, inflation can be caused by a decrease in aggregate supply (such as a supply shock or natural disaster) that reduces the amount of goods and services available in the economy, again leading to price increases.

Inflation Can Be Caused Either by Rapid Growth Rate of Aggregate