In the AD and Solow growth curve model, a positive shock drives up both inflation and the growth rate.

Question

Quizplus · Accepted Answer

According to the AD and Solow growth curve model, a positive shock can increase the growth rate temporarily, but it also leads to an increase in inflation in the short run. However, in the long run, the economy returns to its natural growth rate and the price level adjusts, resulting in no sustained increase in the growth rate due to a positive shock. Therefore, a positive shock does not drive up both inflation and the growth rate in the long run.

In the AD and Solow Growth Curve Model, a Positive