Suppose the economy is initially in equilibrium where real GDP equals potential GDP and the inflation rate is at the target rate
Other things equal, a housing boom will cause aggregate expenditures to increase, which will result in a new, short-run equilibrium. To return GDP to its potential level, the inflation rate will adjust. With adaptive expectations, this will result in A) an increase in aggregate demand and an increase in the inflation rate.
B) a decrease in aggregate supply and an increase in the inflation rate.
C) a decrease in aggregate demand and a decrease in the inflation rate.
D) an increase in aggregate supply and a decrease in the inflation rate.
B
You might also like to view...
In a purely competitive market place, the firm's output will be determined by
A) where MR = MC. B) where MR = ?y/?N. C) where MP = ?y/?N. D) where MC = P.
Holding other factors constant, if 3D-printing technology allows factory workers to manufacture more products per hour, then the real wages of factory workers will ________ and employment of factory workers will ________.
A. increase; increase B. decrease; increase C. increase; decrease D. decrease; not change