Because increases in inflation reduce planned spending and short-run equilibrium output,the
A) inflation adjustment (IA)line is downward-sloping.
B) inflation adjustment (IA)line is upward-sloping.
C) aggregate demand (ADI)curve is horizontal.
D) aggregate demand (ADI)curve is downward-sloping.
E) aggregate demand (ADI)curve is upward-sloping.

Question

Quizplus · Accepted Answer

Increases in inflation lead to a decrease in planned spending, shifting the ADI curve downward. As a result, short-run equilibrium output decreases. This is why the IA line is downward-sloping as well.

Because Increases in Inflation Reduce Planned Spending and Short-Run Equilibrium