If the target inflation rate is 3 percent and the actual rate of inflation falls below the target rate,
A)the AD curve will shift to the left.
B)the AD curve will shift to the right.
C)there will be an upward movement along the AD curve.
D)there will be a downward movement along the AD curve.
E)the AD will not shift, nor will there be a movement along the AD curve.

Question

Quizplus · Accepted Answer

If the actual rate of inflation falls below the target rate, it means that prices are not increasing as much as expected. This will lead to a decrease in production costs and an increase in real incomes, causing an increase in aggregate demand. As a result, there will be a downward movement along the AD curve.

If the Target Inflation Rate Is 3 Percent and the Actual