Figure 13.1
-The aggregate demand curves in Figure 13.1 have a positively-sloped portion.The reason this can happen is ________.
A)sloppy editing
B)the monetary policy response to declining inflation causes the real interest rate to fall,which causes output to rise
C)a sudden increase in potential output
D)changes in expected inflation cause the real interest rate to change in the opposite direction
E)rising inflation causes financial frictions to increase

Question

Figure 13.1 
-The aggregate demand curves in Figure 13.1 have a positively-sloped portion.The reason this can happen is ________.
A)sloppy editing 
B)the monetary policy response to declining inflation causes the real interest rate to fall,which causes output to rise 
C)a sudden increase in potential output 
D)changes in expected inflation cause the real interest rate to change in the opposite direction 
E)rising inflation causes financial frictions to increase

Quizplus · Accepted Answer

Changes in expected inflation cause the real interest rate to change in the opposite direction, which can cause the aggregate demand curve to slope upwards. As expected inflation rises, the real interest rate falls, which boosts consumption and investment spending and increases output.

Figure 13.1 -The Aggregate Demand Curves in Figure 13.1 Have a Positively-Sloped