If real GDP is above potential GDP, will the inflation adjustment line shift up or down?ResponsesThe inflation adjustment line will shift down.The inflation adjustment line will shift down.The inflation adjustment line will not shift until the following year.The inflation adjustment line will not shift until the following year.The inflation adjustment line will shift up.The inflation adjustment line will shift up.The inflation adjustment line will not shift at all.The inflation adjustment line will not shift at all.
Question
If real GDP is above potential GDP, will the inflation adjustment line shift up or down?ResponsesThe inflation adjustment line will shift down.The inflation adjustment line will shift down.The inflation adjustment line will not shift until the following year.The inflation adjustment line will not shift until the following year.The inflation adjustment line will shift up.The inflation adjustment line will shift up.The inflation adjustment line will not shift at all.The inflation adjustment line will not shift at all.
Solution
The inflation adjustment line will shift up. When real GDP is above potential GDP, it indicates an overheated economy. This is often associated with inflationary pressures, which would cause the inflation adjustment line to shift upwards.
Similar Questions
The inflation adjustment (IA) line will move up if there is a(n)ResponsesA decrease in real GDP.decrease in real GDP.B decrease in expected inflation.decrease in expected inflation.C increase in expected inflation.increase in expected inflation.D increase in potential GDP.
Based on the information below, if economic policy does not change, what will inflation be in the long run?Real GDP is expressed as the percent deviation from potential GDP, and inflation is expressed as a percentage.Inflation Adjustment LineReal GDP Inflation2.0 1.01.0 1.00.0 1.0–1.0 1.0–2.0 1.0–3.0 1.0Aggregate Demand CurveReal GDP Inflation2.0 0.01.0 1.00.0 1.5–1.0 3.0–2.0 5.0–3.0 8.0
If the central bank lowers the target inflation rate, then the monetary policy rule line will:ResponsesA shift downshift downB become steepebecome steepeC become flatterbecome flatterD shift up
If real GDP decreases: a. there will be a downward movement along the money demand curve. b. the money demand curve will shift to the left. c. there will be an upward movement along the money demand curve. d. the money demand curve will shift to the right.
The inflation adjustment (IA) line showsResponsesA the level of inflation in the economy at any point in time.the level of inflation in the economy at any point in time.B the relationship between the interest rate and aggregate demand.the relationship between the interest rate and aggregate demand.C the change in the rate of inflation needed to reach the target inflation rate.the change in the rate of inflation needed to reach the target inflation rate.D the price level in the economy at any point in time.
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