Let’s have some practice with the dynamic 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. When you look at a fixed dynamic aggregate demand curve, like the one in Figure 30.3, what is being held constant? (choose one):

Spending growth (growth in M +

growth in v)

Real GDP growth (growth in Y )

Inflation (growth in P )

b. When you look at a shifting dynamic aggregate demand curve, like the one in Figure 30.4, what had to change to make the curve shift? (choose one):
Spending growth (growth in M +
growth in v)
Real GDP growth (growth in Y )
Inflation (growth in P )

c. According to the quantity theory, which of the following statements must be false, and why? More than one may be false.
“Last year, spending grew at 10%, real growth was 4%, and inflation was 6%.”
“Last year, spending grew at 4%, real growth was –2%, and inflation was 6%.”
“Last year, spending grew at 100%, real growth was 0%, and inflation was 20%.”
“Last year, spending grew at 5%, real growth was 5%, and inflation was 2%.”
“Last year, spending grew at 10%, real growth was 5%, and inflation was –5%.” : lop1