-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)0 per cent a year
B)10 per cent a year
C)20 per cent a year
D)more than 20 per cent a year

Question

-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)0 per cent a year 
B)10 per cent a year 
C)20 per cent a year 
D)more than 20 per cent a year

Quizplus · Accepted Answer

The inflation rate is 10 per cent a year because the price level increases from 100 to 110.

-An Economy Is at Potential GDP and the Price Level