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An Economy Is in Long-Run Equilibrium and the Price Level

Question 4

Multiple Choice

An economy is in long-run equilibrium and the price level is 100 in the figure above. Aggregate demand increases and the aggregate demand curve shifts to AD1. If the increase in aggregate demand is expected, then the inflation rate is


A) 0 percent a year.
B) 10 percent a year.
C) 20 percent a year.
D) More than 20 percent a year.

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