For a fixed inflation rate target, an increase in the inflation rate corresponds to a ________ the aggregate demand curve and an increase in exogenous spending corresponds to a ________ the aggregate demand curve.
A)shift left of; movement up
B)movement up; shift right of
C)shift left of; shift right of
D)movement up; movement down

Question

Quizplus · Accepted Answer

For a fixed inflation rate target, an increase in the inflation rate corresponds to a movement up the aggregate demand curve. Note that rate of inflation is measured on the vertical axis when drawing aggregate demand. An increase in exogenous spending corresponds to a shift right of the aggregate demand curve, as this is a change in spending that is unrelated to output or the inflation rate (the only two variables measured in the AD graph).

For a Fixed Inflation Rate Target, an Increase in the Inflation