In Which of the Following Sets of Circumstances Can We

question 77

Multiple Choice

In which of the following sets of circumstances can we confidently expect inflation?

• A)aggregate supply and aggregate demand both increase
• B)aggregate supply and aggregate demand both decrease
• C)aggregate supply decreases and aggregate demand increases
• D)aggregate supply increases and aggregate demand decreases

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Definitions:

Classical Dichotomy

The theoretical separation of nominal and real variables in classical economics, suggesting that changes in the money supply only affect nominal variables, not real ones.

Real Variables

Economic variables measured in terms of physical quantities or adjusted for changes in prices over time, excluding inflation or deflation effects.

Nominal Variables

Variables measured in monetary terms without adjusting for changes in price levels or inflation.

Inflation Theory

is the set of various theories explaining the cause and effects of increasing prices or inflation in an economy.