In the dynamic model of aggregate demand and aggregate supply, increases in the natural level of output lead to _____ in output and ______ in inflation.
A) increases; increases
B) increases; no change
C) no change; increases
D) no change; no change

Question

Quizplus · Accepted Answer

Increases in the natural level of output mean that the long-run aggregate supply curve shifts to the right. This leads to increases in output (as the economy is able to produce more at every given price level) but does not lead to a change in inflation, as the long-run aggregate supply curve is vertical at the natural level of output.

In the Dynamic Model of Aggregate Demand and Aggregate Supply