AD - AS Shocks
-On the graph above,suppose point G is on the short-run aggregate supply curve π = 2.5 + 2 × (Y - 22)and aggregate demand curve Y = 29.25 - 0.5π.If output at point G is 25,and inflation expectations are adaptive,then the inflation rate next period will be ________.
A)11.5
B)14.5
C)8.5
D)2.5
E)none of the above

Question

AD - AS Shocks 
-On the graph above,suppose point G is on the short-run aggregate supply curve π = 2.5 + 2 × (Y - 22)and aggregate demand curve Y = 29.25 - 0.5π.If output at point G is 25,and inflation expectations are adaptive,then the inflation rate next period will be ________.
A)11.5 
B)14.5 
C)8.5 
D)2.5 
E)none of the above

Quizplus · Accepted Answer

To find the inflation rate at point G, substitute Y = 25 into the short-run aggregate supply curve: π = 2.5 + 2 × (25 - 22) = 2.5 + 6 = 8.5. Since inflation expectations are adaptive, the inflation rate next period will be the same as the current period, which is 8.5.