-An economy is at potential GDP and the price level is 100 in the figure above. If aggregate demand unexpectedly increases so that the aggregate demand curve shifts to AD₁, the inflation rate is ) A) 20 percent a year B) 10 percent a year C) 0 percent a year D) More than 20 percent a year

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Quizplus · Accepted Answer

When aggregate demand increases, the price level rises above 100. If the price level increases to 110, this represents a 10 percent increase, indicating a 10 percent inflation rate.

-An Economy Is at Potential GDP and the Price Level