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Question 16
Use the figure below to answer the following question(s).
Figure
d95dfd75-100f-4648-b364-c37c4c792693.PNG
In Figure 10-11, which of the following would most likely cause the movement from point to point ?
(1) a decrease in the expected inflation rate
(2) an increase in the expected inflation rate
(3) a major technological advance
(4) a temporary reduction in oil prices

Ask by Graham Turnbull. in Cayman Islands
Mar 31,2025

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The most likely cause for the movement from point to point is (3) a major technological advance.

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The Deep Dive

A change from point to point can be influenced by various economic factors. An increase in the expected inflation rate (option 2) generally causes a rightward shift in the aggregate demand curve, moving the economy towards a higher level of output and price level, aligning with the shift from to .
Conversely, a major technological advance (option 3) improves productivity, which typically lowers costs and could shift the aggregate supply curve to the right, also potentially moving the economy to a new equilibrium at a higher output level. However, it’s the inflation expectations that create a more direct link to the shift described.

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