An increase in the central bank's target rate of inflation is represented by:
A) a movement up the DAD curve.
B) a movement down the DAD curve.
C) a rightward shift in the DAD curve
D) a leftward shift in the DAD curve.

Question

Quizplus · Accepted Answer

An increase in the central bank's target rate of inflation would lead to expectations of higher future inflation, which typically encourages more spending and investment in the short run due to lower real interest rates. This increase in aggregate demand is represented by a rightward shift in the Demand-Aggregate Demand (DAD) curve.

An Increase in the Central Bank's Target Rate of Inflation