Inflation that is caused by an increase in aggregate demand ...

[jake]

Inflation that is caused by an increase in aggregate demand without any change in aggregate supply is called
 
  A) demand-push inflation. B) cost-pull inflation.
  C) cost-push inflation. D) demand-pull inflation.

Question 2

What is the Phillips curve? What does the Phillips curve suggest about optimal policy?
 
  What will be an ideal response?

[EAN94]

Answer to Question 1

D

Answer to Question 2

The Phillips curve shows a trade-off between unemployment and inflation. With the unemployment rate on the horizontal axis and inflation on the vertical, the Phillips curve is pictured as a downward sloping curve. If the curve is a suitable representation of the economy, in the short run policy makers can choose the combination of inflation and unemployment that they want.