To assess which factors are responsible for economies having low, continuous positive inflation rates, we can analyze each option provided:
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Shifts in long-run aggregate supply: This typically does not directly cause continuous inflation. In fact, shifts that lead to increased productivity can potentially lower inflation rates, as they allow the economy to produce more goods and services without raising prices.
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Shifts in aggregate demand: This is a primary driver of inflation. When aggregate demand increases (due to factors such as increased consumer spending, government expenditure, or investment), it can lead to higher price levels, contributing to inflation. Thus, shifts in aggregate demand can be responsible for continuous positive inflation rates.
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Full-employment output equilibrium: Full employment does not inherently cause inflation; rather, it indicates that the economy is operating at its potential level of output. However, when the economy is at full employment, demand-pull inflation can occur if demand continues to rise, leading to increased prices. Therefore, while it can be associated with inflation, it does not cause it by itself.
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Periodic economic downturns: Normally, economic downturns are associated with lower inflation or deflation, as demand decreases and excess capacity typically leads to lower price levels. Therefore, downturns are not directly responsible for maintaining continuous positive inflation rates.
Based on this analysis, the most relevant option for the cause of low, continuous positive inflation rates is:
- Shifts in aggregate demand.
While full-employment output equilibrium can relate to inflation under certain conditions, it is not a direct cause of inflation itself.