Suppose the current rate of inflation is 4 percent. However, if real and potential GDP are to be equal, inflation will need to be at 2 percent. Show, using the AD curve and the IA line, where real GDP is relative to potential GDP under these circumstances.

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The Answer of Suppose the current rate of inflation is 4 percent. However, if real and potential GDP are to be equal, inflation will need to be at 2 percent. Show, using the AD curve and the IA line, where real GDP is relative to potential GDP under these circumstances.

Suppose the Current Rate of Inflation Is 4 Percent