Which of the following would unambiguously generate inflation?
A)a decrease in aggregate demand accompanied by an increase in aggregate supply
B)an increase in aggregate demand accompanied by an increase in aggregate supply
C)a decrease in aggregate demand accompanied by a decrease in aggregate supply
D)an increase in aggregate demand accompanied by a decrease in aggregate supply

Question

Quizplus · Accepted Answer

An increase in aggregate demand accompanied by a decrease in aggregate supply would lead to unambiguous inflation, as there is an increase in demand for goods and services with a decrease in their supply, leading to a rise in prices. In options A and C, the decrease in aggregate demand counteracts the effects of the increase or decrease in aggregate supply, respectively, leading to no clear outcome. Option B could lead to either an increase in output or inflation, depending on the extent of the increase in aggregate demand and supply.

Which of the Following Would Unambiguously Generate Inflation