The Following Table Gives a Numerical Example of an Aggregate

question 200

Essay

The following table gives a numerical example of an aggregate demand/inflation curve. (A)Sketch the curve in a graph.
(B)What is the average rate of inflation in the long run?
(C)Suppose the central bank decreases the target rate of inflation to 2 percent. Sketch a new AD curve corresponding to the new lower money supply growth rate. How does the new curve compare with the old curve?
(D)What will happen to the average rate of inflation in the long run (assuming potential GDP growth does not change)?

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