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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

“One-shot inflation may be a demand-side (of the economy) or a supply-side phenomenon, but continued inflation is likely to be a demand-side phenomenon.” Do you agree or disagree with this statement? Explain your answer.

To determine

One shot inflation and continued inflation.

Explanation

Agree. The continued inflation is more likely to be a demand side phenomenon. This is due to the reason that continues increase in aggregate demand, which increases the price level and is more likely to occur than the continued supply shocks. From the demand side, if the Fed increases the money supply, it will result in an increase in the aggregate demand and hence, the price level results in one shot inflation. If the increase in money supply occurs every year, then there will be continued inflation, which is likely to occur...

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