A cost- price inflation spiral results if the policy response to stagflation is to keep
A)decreasing aggregate demand.
B)increasing aggregate demand.
C)increasing short- run aggregate supply.
D)decreasing short- run aggregate supply.
E)doing nothing.

Question

Quizplus · Accepted Answer

Increasing aggregate demand in response to stagflation can lead to a cost-price inflation spiral. This is because raising demand when the economy is already facing high inflation and stagnation can exacerbate inflationary pressures without necessarily improving output or employment significantly.

A Cost- Price Inflation Spiral Results If the Policy Response