According to the price adjustment equatio The price adjustment line Ê ˆ Π = Á ˜ + π ^e + Z, Ë Y* ¯ A) shifts up, indicating higher inflation, if real GDP was above its potential GDP last year and shifts down if real GDP was below its potential. B) shifts up if the expected rate of inflation p^erises and shifts down if the expected rate of inflation falls. C) shifts up if there is a positive price shock positive value of Z) and shifts down if there is a negative price shock. D) all of the above. E) only a and b.

Question

Quizplus · Accepted Answer

The price adjustment equation suggests that inflation can be influenced by the gap between real and potential GDP, expectations of inflation, and price shocks. Each of these factors can cause the price adjustment line to shift up or down, indicating changes in inflation levels.

According to the Price Adjustment Equatio