If there is an inflationary spiral,GDP will fall as inventories rise.
An inflationary spiral results from the opposite.The AD curve intersects the AS curve to the right of full employment,leading to a depletion of inventory levels.Costs and prices rise as firms attempt to restore inventory levels.

Question

Quizplus · Accepted Answer

The statement is incorrect. An inflationary spiral results from the AD curve intersecting the AS curve to the right of full employment, leading to a depletion of inventory levels. This results in costs and prices rising as firms attempt to restore inventory levels, which in turn exacerbates inflation. GDP may initially rise due to increased spending, but eventually, the inflationary spiral will lead to a decrease in GDP.

If There Is an Inflationary Spiral,GDP Will Fall as Inventories