All else equal, an increase in the rate of inflation ________ planned spending and ________ short-run equilibrium output.
A)increases; increases
B)decreases; increases
C)increases; decreases
D)decreases; decreases

Question

Quizplus · Accepted Answer

The AD curve slopes downward showing the inverse relationship between planned spending and the inflation rate; higher inflation rates cause consumption, investment and net exports to decrease and the short-run equilibrium output to decrease.

All Else Equal, an Increase in the Rate of Inflation