According to the inflation parable discussed in the text,a positive shock to spending:
A) does not affect price and output at first,but in the long run both output and price increase.
B) increases both price and output at first but neither price nor output changes in the long run.
C) increases price at first but in the long run only increases output.
D) increases output at first but in the long run only increases price.

Question

Quizplus · Accepted Answer

In the inflation parable, a positive shock to spending initially boosts output as firms increase production to meet the higher demand. However, over time, as the economy hits capacity constraints and resources become fully utilized, the primary effect shifts from an increase in output to an increase in prices, leading to inflation without further gains in output.

According to the Inflation Parable Discussed in the Text,a Positive