Draw a scatter diagram of the inflation rate and the interest ...

[RYAN BANYAN]

Draw a scatter diagram of the inflation rate and the interest rate. Describe the relationship.
 
  What will be an ideal response?

Question 2

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?
 
  A) The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.
  B) The aggregate demand curve shifts to the right during most periods.
  C) Aggregate demand and potential real GDP decrease continuously.
  D) Potential real GDP increases continuously.

[bblaney]

Answer to Question 1

To make a scatter diagram of the inflation rate and the interest rate, plot the inflation rate on the x-axis and the interest rate on the y-axis. The graph will be a set of dots and is shown in Figure A1.4 . The pattern made by the dots tells us that as the inflation rate increases, the interest rate usually increases so there is a (weak) positive relationship.

Answer to Question 2

C

[RYAN BANYAN]

TYSM

[chereeb]

Excellent