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

The following table describes the aggregate demand curve, where real GDP is expressed as the percent deviation from potential GDP, and inflation is expressed as a percentage.Real GDP Inflation2.0 3.01.0 4.00.0 5.0–1.0 7.0–2.0 9.0Due to a price shock, inflation increases by 2%. In the long run, what will inflation be?

While the economy is at potential output, the government increases spending. The following table describes the aggregate demand curves before and after an increase in government spending, where real GDP is expressed as the percent deviation from potential GDP, and inflation is expressed as a percentage.Real GDP (Before) Real GDP (After) Inflation2.0 4.0 3.01.0 3.0 4.00.0 2.0 5.0–1.0 1.0 7.0–2.0 0.0 9.0In the short run, what is the inflation rate after the increase in government spending?

Use the data in the table to answer the question. Real GDP (percent deviationfrom potential GDP) Inflation2.0 2.01.5 2.751.0 3.00.5 3.250 3.5–0.5 3.75–1.0 4.0–1.5 4.25–2.0 4.5Based on this data, what is the average rate of inflation in the long run?

QuestionIf an economy is in long-run equilibrium, which of the following combinations of policy actions will necessarily result in inflation in the short run?ResponsesDecreasing administered interest rates and increasing government spendingDecreasing administered interest rates and increasing government spendingIncreasing the discount rate and decreasing income taxesIncreasing the discount rate and decreasing income taxesIncreasing the required reserve ratio and increasing the discount rateIncreasing the required reserve ratio and increasing the discount rateSelling government bonds on the open market and decreasing government spendingSelling government bonds on the open market and decreasing government spendingBuying government bonds on the open market and decreasing government spending

Which of the following can cause demand-pull inflation if the economy is currently in equilibrium at full-employment GDP? A reduction in government spending plus an increase in taxes. A decrease in imports plus an increase in exports. An increase in the company income tax rate plus higher interest rates. A decrease in real wages. An increase in real interest rates plus a decrease in nominal interest rates.