All else equal, an increase in the rate of inflation ____ aggregate spending and ____ short-run equilibrium output.
A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases

Question

Quizplus · Accepted Answer

The AD curve slopes downward showing the inverse relationship between aggregate spending and the inflation rate - higher inflation rates cause consumption, investment and net exports to decrease and the short-run equilibrium output to decrease.

All Else Equal, an Increase in the Rate of Inflation