How does the natural rate hypothesis relate to the AS-AD model?

What will be an ideal response?

The natural rate hypothesis is the proposition that when the inflation rate changes, the unemployment rate changes temporarily. Eventually, however, the unemployment rate returns to the natural unemployment rate. This definition is in terms of the Phillips curve. In terms of the AS-AD model, the natural rate hypothesis is that increases in aggregate demand temporarily increase real GDP so that it is greater than potential GDP. But eventually real GDP returns to potential GDP so the increase in real GDP above potential GDP is only temporary.

Economics

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