Where Would the Economy Be Operating Relative to the Dynamic

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The Answer is First of all, the intersection of the dynamic aggregate demand curve and the short-run aggregate supply curve determines the current inflation and the current output.If the economy is experiencing an expansionary gap, the current level of output exceeds the potential output, so we know we are not on the long-run aggregate supply curve.The current short-run aggregate supply curve is lower than where it should be for long-run equilibrium.The expansionary gap will put upward pressure on inflation.As this happens the short-run aggregate supply curve will shift upwards, decreasing the expansionary gap, until the current inflation equals the expected inflation and current output equals potential output.

Where Would the Economy Be Operating Relative to the Dynamic

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