A cost-price inflation spiral results if the policy response to stagflation is to keep
A)decreasing aggregate demand.
B)decreasing short-run aggregate supply.
C)increasing aggregate demand.
D)increasing 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, as it may exacerbate inflation without addressing the underlying supply-side issues.

A Cost-Price Inflation Spiral Results If the Policy Response to Stagflation