According to the IS-MP-PC model, an increase in the target inflation rate causes
A)an upward shifts of the AD curve.
B)no change in the AD curve.
C)a downward shift in the AD curve.
D)it depends.

Question

Quizplus · Accepted Answer

Increasing the target inflation rate shifts the Phillips curve upward, which means that, in the short run, there will be a positive relationship between inflation and output. This results in an upward shift of the AD curve as higher inflation expectations increase demand.

According to the IS-MP-PC Model, an Increase in the Target