Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases inflation by increasing overall production capacity.
B
It increases inflation due to higher demand for goods.
C
It has no effect on inflation in a recessionary gap.
D
It leads to hyperinflation in the economy.
Understanding the Answer
Let's break down why this is correct
Answer
An increase in aggregate supply means that businesses are producing more goods and services. During a recessionary gap, the economy is not using all its resources efficiently, leading to high unemployment and low demand. When aggregate supply increases, it can help lower prices because there are more products available for people to buy. For example, if a bakery starts baking more bread, the price of bread might drop because there is plenty for everyone. This increase in supply can help reduce inflation, even when the economy is struggling.
Detailed Explanation
When more goods are produced, prices tend to go down. Other options are incorrect because This answer suggests that more demand causes higher prices; This answer implies that supply changes don't matter.
Key Concepts
aggregate supply
inflation
Topic
Understanding Recessionary Gaps
Difficulty
medium level question
Cognitive Level
understand
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