Growth in aggregate demand will

Question

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An increase in aggregate demand will shift the economy to a higher point on the short-run Phillips curve. This means that there is a temporary tradeoff between inflation and unemployment, and as aggregate demand increases, there will be a short-term increase in both inflation and output. However, in the long-run, the Phillips curve will shift back and become steeper, showing that there is no permanent tradeoff between inflation and unemployment.

Growth in Aggregate Demand Will