For a given growth rate in aggregate supply, slower growth in aggregate demand will lead to lower inflation.

Question

Quizplus · Accepted Answer

If the growth rate in aggregate supply remains constant, a slower growth in aggregate demand will result in lower inflation as there is less pressure on prices due to lower demand. However, if the growth rate of aggregate supply is slower, then even a slowdown in aggregate demand growth could result in inflation if supply cannot keep up with demand.

For a Given Growth Rate in Aggregate Supply, Slower Growth