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Suppose potential GDP is $5,000 billion. Use the data below to graph the aggregate demand curve....

Suppose potential GDP is $5,000 billion. Use the data below to graph the aggregate demand curve.

Inflation (percent) 5 4 3 2 1

Real GDP (billions of dollars) 4800 4900 5000 5100 5200

1.Suppose the current inflation rate is 2 percent. Draw the inflation adjustment line. What is the current value of real GDP?

2.In the long run, what will the inflation rate be if economic policy does not change? Explain how this adjustment takes place.

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