Supply-side inflation could be caused by which of the following?
A) an increase in aggregate demand
B) a decrease in aggregate demand
C) an increase in long-run aggregate supply
D) a decrease in long-run aggregate supply

Question

Quizplus · Accepted Answer

Supply-side inflation refers to an increase in the general price level resulting from a decrease in the economy's productive capacity or potential output, i.e., a decrease in long-run aggregate supply. This may be caused by factors such as a decrease in the quantity or quality of production inputs (e.g., natural resources or labor), a decrease in labor productivity, or a decrease in technological progress. Therefore, the best choice is D, as the other options refer to demand-side factors.

Supply-Side Inflation Could Be Caused by Which of the Following