For the following question(s),assume that the economy is in long-run equilibrium in the aggregate demand/aggregate supply model and that some sort of event takes place.In each case,mark the most likely impact of the event on the aggregate demand/aggregate supply diagram given below.
Figure 10-19

-Refer to Figure 10-19.There is an increase in the expected rate of inflation.
A)The aggregate demand curve would shift to the right.
B)The short-run aggregate supply curve would shift to the left.
C)The price level would rise and real GDP would remain the same.
D)All of the above are correct.

Question

For the following question(s),assume that the economy is in long-run equilibrium in the aggregate demand/aggregate supply model and that some sort of event takes place.In each case,mark the most likely impact of the event on the aggregate demand/aggregate supply diagram given below.
Figure 10-19
 
-Refer to Figure 10-19.There is an increase in the expected rate of inflation.
A)The aggregate demand curve would shift to the right. 
B)The short-run aggregate supply curve would shift to the left. 
C)The price level would rise and real GDP would remain the same. 
D)All of the above are correct.

Quizplus · Accepted Answer

An increase in the expected rate of inflation would lead to an increase in the aggregate demand curve, as people would expect prices to rise in the future and would therefore increase their spending. It would also lead to a shift to the left in the short-run aggregate supply curve, as firms would be less willing to produce at the same price level when they expect costs to rise. Finally, the price level would rise and real GDP would remain the same, as the increase in aggregate demand would be offset by the decrease in aggregate supply.

For the Following Question(s),assume That the Economy Is in Long-Run