What causes demand-side inflation? What causes supply-side inflation?
What will be an ideal response?
Ans: Demand-side inflation is caused by an increase in aggregate demand while long-run aggregate supply is constant. Supply-side inflation is caused by a reduction in short-run aggregate supply.
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Which of the following is most likely to reduce the rate of economic growth?
A) investment in human capital B) a high domestic saving rate C) subsidies for R&D activities D) slow technological progress
Increases in the quantity of money can start a ________ inflation, and an increase in government expenditure can start a ________ inflation
A) demand-pull; demand-pull B) demand-pull; cost-push C) cost-push; cost-push D) cost-push; demand-pull E) None of the above is correct because increases in the quantity of money are necessary to continue an inflation but cannot start an inflation.
Once marginal cost rises above the average cost,
a. Average costs will increase b. Average costs will decrease c. Average costs will stay the same d. None of the above
The Taylor rule says that if inflation rises by 1 percent above its target of 2 percent, then the federal funds rate should be raised by ______ relative to the inflation rate.
a. 4% b. 2% c. 1% d. 0.5%