For a fixed inflation rate target, a decrease in the inflation rate corresponds to a ________ the aggregate demand curve and a decrease 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 down; shift left of

Question

Quizplus · Accepted Answer

For a fixed inflation rate target, a decrease in the inflation rate corresponds to a movement down the aggregate demand curve. Note that rate of inflation is measured on the vertical axis when drawing aggregate demand. A decrease in exogenous spending corresponds to a shift left 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, a Decrease in the Inflation