Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply?
A)Aggregate demand and potential real GDP decrease continuously.
B)The aggregate demand curve shifts to the right except during periods when workers and firms expect higher wages.
C)Potential real GDP increases continuously during economic expansions and decreases continuously during economic recessions.
D)The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.

Question

Quizplus · Accepted Answer

The dynamic model assumes that the short-run aggregate supply curve shifts to the right over time, reflecting productivity growth and other factors, except when expectations of higher wages lead to increased production costs.

Which of the Following Is an Assumption Made by the Dynamic