| 1. High growth will lead to inflation. |
| 2. High growth will lead to deflation. |
A) Only 1
B) Only 2
C) Both 1 and 2
D) Neither 1 nor 2
Correct Answer: A
Solution :
Typically, higher inflation is caused by strong economic growth. If Aggregate demand in an economy expanded faster than aggregate supply, we would expect to see a higher inflation rate. If demand is rising faster than supply, then this suggests that economic growth is higher than the long run sustainable rate of growth.
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