In the dynamic model of aggregate demand and aggregate supply, one period in time is connected to the next period through:
A) the monetary policy rule.
B) demand shocks.
C) inflation expectation.
D) the natural level of output.

Question

Quizplus · Accepted Answer

Inflation expectation connects one period to the next in the dynamic model of aggregate demand and aggregate supply because it influences the behavior of consumers and producers, affecting wage negotiations, pricing strategies, and overall economic planning, thereby linking economic conditions across different periods.

In the Dynamic Model of Aggregate Demand and Aggregate Supply