It is frequently difficult to separate supply-side from demand-side inflation because
A) they are ultimately caused by the same forces.
B) resource price increases may be responsible for the initial price level increase, but further price level increases result from the Fed's efforts to reduce the resulting unemployment.
C) in cases where there is too much aggregate spending, the economy has excess capacity and therefore has a horizontal aggregate supply curve.
D) both kinds of inflation lead to a rapidly increasing total real output.
E) the resulting price level effects of each offset one another.

Question

Quizplus · Accepted Answer

Supply-side inflation is often initiated by increases in the cost of resources, which leads to an initial increase in price levels. However, demand-side inflation can be exacerbated by the Federal Reserve's actions to mitigate the unemployment caused by higher prices, making it difficult to separate the effects of supply-side and demand-side inflation.

It Is Frequently Difficult to Separate Supply-Side from Demand-Side Inflation