The AD schedule indicates that _______ inflation is associated with ________ output?
Correct answer: A. higher, lower
- A. higher, lower
- B. higher, higher
- C. lower, lower
- D. zero, zero
Explanation
The AD curve slopes downward in inflation-output space: higher inflation raises interest rates or reduces real money balances, weakening spending and output. Thus higher inflation is associated with lower output.
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