-Refer to Exhibit 16-3.The economy is at point A.As the result of an unexpected increase in aggregate demand,in the short run,the Friedman natural rate theory would predict

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The Friedman natural rate theory predicts that an unexpected increase in aggregate demand will lead to an increase in output and inflation in the short run. This is because firms will initially be unable to increase production quickly enough to meet the increased demand, leading to higher prices. In the long run, however, the economy will return to its natural rate of output and inflation, as firms adjust their production capacity. In Exhibit 16-3, this is represented by a movement from point A to point B.