The Following Table Gives a Numerical Example of an Aggregate

question 141

Essay

The following table gives a numerical example of an aggregate demand/inflation curve. $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Real GDP (percent } \\\text { deviation from potential } \\\text { GDP) }\end{array} & \\\hline 2.0 & \text { Inflation } \\\hline 1.5 & 3.0 \\\hline 1.0 & 3.5 \\\hline 0.5 & 4.0 \\\hline 0.0 & 4.5 \\\hline - 0.5 & 5.0 \\\hline - 1.0 & 6.0 \\\hline - 1.5 & 8.0 \\\hline - 2.0 & 10.0 \\\hline\end{array}$$ (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 infletion to 2 percent. Sketch a new $A D$ curve carrespanding to the new lower money supply growth rate. Haw does the new curve campare with the ald curve?
(D) What wril happen to the average rate of inflation in the long run (assuning potential GDP rowth does nat change)?

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