A Cost-Push Inflation Spiral Results If the Fed's Response to Stagflation

question 401

Multiple Choice

A cost-push inflation spiral results if the Fed's response to stagflation is to keep

• A) decreasing aggregate demand.
• B) decreasing aggregate supply.
• C) increasing aggregate demand.
• D) increasing aggregate supply.

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Definitions:

Heckscher-Ohlin Theorem

An economic theory stating that countries will export goods that use their abundant factors of production and import goods that use their scarce factors of production.

Quota

A government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a specific time period.

Subsidies

Subsidies are financial grants or support extended by governments to firms, individuals, or institutions to encourage the production or consumption of certain goods or services, or to support industries.

Domestic Firms

Refers to companies that operate within the country where they are based and conduct their business activities in the local market.