Answer-<p>At point&nbsp;A, inflation is equal to the underlying rate of inflation and output is a...

When we are not at the equilibrium rate of unemployment, the rate of underlying inflation changes. Since we dont know what aggregate demand is doing, we cant meaningfully speak of excess supply or demand. Our presumption will be that aggregate demand and short-run aggregate supply are equal.

Question

At point A, inflation is equal to the underlying rate of inflation and output is at the level of output consistent with the equilibrium unemployment rate. If the economy were at point B, you would expect

A the underlying rate of inflation to accelerate because the actual inflation rate exceeds the underlying rate of inflation

B prices will decline because there is an excess supply of goods (neoclassical assumption)

C output to decline because there is an excess supply of goods (Keynesian assumption)

D consumer spending to decline because goods are more expensive

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At point A, inflation is equal to the underlying rate of inflation and output is at the level of output consistent with the equilibrium unemployment rate. If the economy were at point B, you would expect

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