All else equal, a decrease 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 - lower inflation rates cause consumption, investment and net exports to increase and the short-run equilibrium output to increase.

All Else Equal, a Decrease in the Rate of Inflation