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

Q: Answer-At point A, inflation is equal to the underlying rate of inflation and output is at the level o...

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.