What are sources that can start a demand-pull inflation?
What will be an ideal response?
Demand-pull inflation starts with an increase in aggregate demand. This increase can arise by increases in the quantity of money, increases in government expenditure, or increases in net exports because any of these three shift increase aggregate demand and shift the AD curve rightward. The increase in aggregate demand leads to a higher price level and, temporarily, a higher level of real GDP. If the economy began at full employment, then temporarily the level of real GDP will be above potential. In the long run, however, the money wage rate rises to offset the increase in the price level, so aggregate supply decreases and the AS curve shifts leftward. The decrease in aggregate supply also raises the price level. So the only way the inflation can continue is if aggregate demand continues to increase.
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A pollution tax would be preferable to a system of transferable permits when
a. The marginal costs of damages are steep and the marginal costs of pollution reduction are relatively stable b. The marginal costs of damages are steep and the marginal costs of pollution reduction are steep c. The marginal costs of damages are relatively stable and the marginal costs of pollution reduction are relatively stable d. The marginal costs of damages are relatively stable and the marginal costs of pollution reduction are steep e. The marginal costs of damages are elastic and the marginal costs of pollution reduction are also elastic
The proposition of monetary neutrality states that changes in the money supply have:
A) no impact on output in the short run B) no impact on output in the long run C) no impact on the price level in the short run D) no impact on the price level in the long run