Output and inflation movements can arise from either demand or supply shifts. How can we tell them apart?
What will be an ideal response?
While shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve can have the same effect on inflation, they have opposite effects on output. If the dynamic aggregate demand curve shifts to the right, increasing inflation, it will result in higher output. If the short-run aggregate supply curve shifts to the left, increasing inflation, output falls. Therefore changes in output associated with inflation give an indication as to whether the cause is a shift in demand or a shift in supply.
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a. True b. False Indicate whether the statement is true or false