Beginning at Long-Run Equilibrium in the Dynamic Model of Aggregate

question 92

Multiple Choice

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a multiperiod positive demand shock occurs, the DAS shifts upward because:

• A) the central bank increases the target rate of inflation in response to higher rates of inflation.
• B) the deviation of output from the natural level of output increases as result of higher rates of inflation.
• C) higher rates of inflation generate positive supply shocks.
• D) expectations of inflation increase as a result of higher inflation in previous periods.

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