106k views
1 vote
Which of the following changes will necessarily cause inflation?

1) A decrease in aggregate demand and a decrease in short-run aggregate supply.
2) A decrease in aggregate demand and an increase in short-run aggregate supply.
3) A decrease in aggregate demand with no change in short-run aggregate supply.
4) An increase in aggregate demand and a decrease in short-run aggregate supply.
5) An increase in aggregate demand and an increase in short-run aggregate supply.

User Lazlow
by
7.9k points

1 Answer

3 votes
Option 4, "An increase in aggregate demand and a decrease in short-run aggregate supply," will necessarily cause inflation.

Inflation is a sustained increase in the general price level of goods and services in an economy over time. When aggregate demand increases, there is upward pressure on prices, as consumers are willing to pay more for goods and services. When short-run aggregate supply decreases, there is a decrease in the quantity of goods and services that firms are able to produce in the short term, which can result in higher prices due to a shortage of supply.

Therefore, an increase in aggregate demand and a decrease in short-run aggregate supply will lead to an increase in the price level of goods and services, causing inflation.
User Pokeb
by
8.1k points