According to the Price Adjustment Equatio

Multiple Choice

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^e rises 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.