Use the following figure to answer the next question.
Suppose the economy is currently at full employment with aggregate demand curve AD2. A further increase in consumption and investment spending will cause ________.
A. demand-pull inflation, and the new equilibrium output will be more than Q2
B. cost-push inflation, and the new equilibrium output will be less than Q2
C. demand-pull inflation, and the new equilibrium output will be less than Q2
D. cost-push inflation, and the new equilibrium output will be more than Q2
Answer: A
You might also like to view...
A COLA automatically raises the wage rate when
A. GDP increases. B. taxes increase. C. the consumer price index increases. D. the producer price index increases.
In a two-period model with production, a permanent increase in domestic government spending
A) increases domestic output and increases the current account surplus. B) increases domestic output and decreases the current account surplus. C) decreases domestic output and increases the current account surplus. D) decreases domestic output and decreases the current account surplus.