Analyzing an Inflationary Shock

An economy is operating at an equilibrium where unemployment is stable and inflation is constant. A sudden, widespread surge in business optimism leads to a significant increase in investment spending across all sectors. Based on this event alone, which of the following describes the most likely initial impact on the economy?

An economy is initially in a medium-run equilibrium with stable inflation. Match each of the following events to its most likely immediate consequence, which pushes the economy away from this initial equilibrium and leads to rising inflation.

Comparing Mechanisms of Inflationary Shocks