Figure 14.1

-Refer to Figure 14.1.Assume that the economy is originally in equilibrium where real GDP equals potential GDP.Other things equal,an increase in the target inflation rate would best be represented as a movement from ________ in the short run and ________ in the long run.

Question

Figure 14.1

-Refer to Figure 14.1.Assume that the economy is originally in equilibrium where real GDP equals potential GDP.Other things equal,an increase in the target inflation rate would best be represented as a movement from ________ in the short run and ________ in the long run.

Quizplus · Accepted Answer

An increase in the target inflation rate would lead to an increase in aggregate demand in the short run, shifting the AD curve to the right and moving the economy from point Y to point X. In the long run, the economy would return to potential GDP, but at a higher price level, remaining at point X.

Figure 14.1 -Refer to Figure 14.1.Assume That the Economy Is Originally in Economy