Inflation can be caused by
A)increases in aggregate demand only
B)increases in aggregate supply only
C)decreases in aggregate supply only
D)increases in aggregate supply or decreases in aggregate demand
E)increases in aggregate demand or decreases in aggregate supply

Question

Quizplus · Accepted Answer

Inflation can be caused by either an increase in aggregate demand or a decrease in aggregate supply. An increase in aggregate demand can cause demand-pull inflation (when demand exceeds supply), while a decrease in aggregate supply can cause cost-push inflation (when production costs increase due to supply shortages or other factors). Therefore, either an increase in aggregate demand or a decrease in aggregate supply (or both) can contribute to inflation.

Inflation Can Be Caused by