If prices are completely flexible,then an increase in spending growth will lead to an immediate:
A) increase in real output growth without any change in inflation.
B) decrease in real output growth without any change in inflation.
C) decrease in inflation without any change in real output growth.
D) increase in inflation without any change in real output growth.

Question

Quizplus · Accepted Answer

In a scenario where prices are completely flexible, an increase in spending growth will lead to an immediate increase in inflation, as the higher demand can be met with immediate price adjustments without affecting the real output growth, which is determined by factors like technology and resource availability in the short term.

If Prices Are Completely Flexible,then an Increase in Spending Growth