In the short run,if current output remains persistently above potential ________.
A)inflation will rise causing a movement along the aggregate supply curve
B)expected inflation will rise causing an upward shift of the aggregate supply curve
C)the aggregate supply curve will shift until current output returns to its potential level
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

When output is above potential, inflation tends to rise, causing a movement along the aggregate supply curve (A). Over time, expected inflation may increase, leading to an upward shift of the aggregate supply curve (B). Eventually, these adjustments can bring output back to its potential level (C).

In the Short Run,if Current Output Remains Persistently Above Potential