An increase in the target inflation rate will
A)have no effect on the AD curve.
B)cause a rightward shift of the AD curve.
C)cause a leftward shift of the AD curve.
D)cause a downward movement along the AD curve.
E)cause an upward movement along the AD curve.

Question

Quizplus · Accepted Answer

An increase in the target inflation rate typically leads to expectations of higher future inflation. This can encourage consumers and businesses to spend more now before prices go up, which increases aggregate demand. Therefore, it causes a rightward shift of the AD (Aggregate Demand) curve.

An Increase in the Target Inflation Rate Will