The Following Table Gives a Numerical Example of the Inflation

question 66

Essay

The following table gives a numerical example of the inflation adjustment line in the year 2017. $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Real GDP (percent } \\\text { deviation from potential } \\\text { GDP) }\end{array} & \begin{array} { c } \text { Inflation (percent } \\\text { per year) }\end{array} \\\hline 2.0 & \\\hline 1.5 & 5.0 \\\hline 1.0 & 5.0 \\\hline 0.5 & 5.0 \\\hline 0.0 & 5.0 \\\hline - 0.5 & 5.0 \\\hline - 1.0 & 5.0 \\\hline - 1.5 & 5.0 \\\hline - 2.0 & 5.0 \\\hline\end{array}$$ (A) Sketch the line in a graph.
(B) If real GDP is belaw potential GDP in the year 2017 , will the inflation adjustment line shift up ar down in the year 2018 ?
( C ) In the same graph as part (A), sketch an aggregate demand curve. Find the equilibrium level of inflation and real GDP in the year 2018.
(D) What will happen to the inflation adjustment line if ail prices sudkenly increase?

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Definitions:

After-tax Return

The profit realized from an investment after all applicable taxes have been subtracted, representing the actual benefit to the investor.

Purchasing Power

Purchasing power refers to the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy, often used to measure the effect of inflation on income.

Inflation

The pace at which the overall price level of goods and services increases, thereby diminishing buying power.

Retirement Income

The funds an individual receives after retiring, which can come from various sources including pensions, savings, and social security.