Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?
A)Potential GDP increases continuously.
B)Aggregate demand shifts to the right during most periods.
C)Aggregate supply shifts to the right except during periods when workers and firms expect higher wages.
D)Aggregate demand and potential GDP decrease continuously.

Question

Quizplus · Accepted Answer

The dynamic model of aggregate demand and aggregate supply assumes that potential GDP increases continuously, that aggregate demand shifts to the right during most periods, and that aggregate supply shifts to the right except during periods when workers and firms expect higher wages. It does not assume that aggregate demand and potential GDP decrease continuously, making option D the correct answer.

Which of the Following Is Not an Assumption Made by the Dynamic