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Questions and Answers
What does a sustained increase in the general level of prices for goods and services indicate?
What does a sustained increase in the general level of prices for goods and services indicate?
- Inflation (correct)
- Stagflation
- Deflation
- Hyperinflation
Which condition leads to the occurrence of inflation?
Which condition leads to the occurrence of inflation?
- AD = AS
- AD < AS
- AD is constant
- AD > AS (correct)
Which of the following best describes deflation?
Which of the following best describes deflation?
- An increase in the aggregate supply
- A decrease in the general price level (correct)
- A rise in employment rates
- An increase in the demand for goods
What occurs when aggregate demand equals aggregate supply?
What occurs when aggregate demand equals aggregate supply?
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What term describes a significant rise in price levels beyond typical inflation?
What term describes a significant rise in price levels beyond typical inflation?
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Study Notes
Inflation Overview
- Inflation represents a sustained increase in the general price level of goods and services.
- It typically occurs when Aggregate Demand (AD) exceeds Aggregate Supply (AS).
Deflation Overview
- Deflation is characterized by a sustained decrease in the general price level of goods and services.
- It occurs when Aggregate Demand falls short of Aggregate Supply.
Key Terminology
- Aggregate Demand (AD): The total demand for goods and services within an economy at a given overall price level and in a given time period.
- Aggregate Supply (AS): The total supply of goods and services available to a particular market from producers.
Contextual Understanding
- Inflation and deflation are critical indicators of economic health, impacting purchasing power and monetary policies.
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