If there are continual decreases in aggregate supply,the economy will experience
A)a slow decrease in price levels.
B)demand-pull inflation.
C)an expansionary gap.
D)cost-push inflation.

Question

Quizplus · Accepted Answer

A continual decrease in aggregate supply results in rising production costs, which creates cost-push inflation as businesses increase prices to maintain their profit margins. As a result, the economy experiences an inflationary gap where the real GDP is below its potential level.

If There Are Continual Decreases in Aggregate Supply,the Economy Will