If the Solow growth curve increased because of a sudden fall in the price of oil, what would happen to inflation? Assume that spending growth (aggregate demand) does not change—

only the growth curve shifts. Draw the shift in the following figure. (Note: In the real world, this happens fairly often. Big declines in the price of oil happened in 1986 and again in 1998, and the price of oil fell by 50%

in late 2008.)  Lo1

Transcribed Image Text:

Inflation rate (1) Solow growth curve Aggregate demand Real GDP growth rate