In the basic AD/AS macro model, which of the following events would cause stagflation?
A)a large increase in business confidence
B)a large increase in labour productivity
C)a large increase in the net tax rate
D)a large decrease in wages
E)a large increase in the price of raw materials

Question

Quizplus · Accepted Answer

A large increase in the price of raw materials would shift the short-run aggregate supply curve to the left, causing both higher prices and lower output. This combination of rising prices and stagnant output is known as stagflation. None of the other choices would directly cause stagflation.

In the Basic AD/AS Macro Model, Which of the Following