Let's have some practice with the aggregate demand curve. If you want to draw it in your familiar y=b+mx format, you can think of it this way: inflation =( growth in money + growth in velocity )− real growth a. What is being held constant on a fixed aggregate demand curve? o spending growth (growth in M+ growth in v ) o real GDP growth (growth in Y ) o inflation (growth in P ) b. What has to change to make an aggregate demand curve shift?
o inflation (growth in P ) o spending growth (growth in M+ growth in v )
o real GDP growth (growth in Y ) c. Identify each statement that must be false according to the quantity theory, o Last year, spending grew at 10%, real growth was 5%, and inflation was −5%. o Last year, spending grew at 100%, real growth was 0%, and inflation was 20%, o Last year, spending grew at 5%, real growth was 5%, and inflation was 2%. o Last year, spending grew at 4%, real growth was −2%, and inflation was 6%, o Last year, spending grew at 10%, real growth was 4%, and inflation was 6%.