Dynamic aggregate demand and aggregate supply model

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Which of the following is not a correct comparison between a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

A. In the dynamic model, contractionary policy would be used when demand grows too slowly; in the basic model, expansionary policy would be used when demand increases.

B. If the economy is above full employment, contractionary fiscal policy will reduce the inflation rate in the basic but not the dynamic model.

C. The basic model assumes that potential GDP is constantly growing while the dynamic model assumes that it is static.

D. All of the above are correct statements about the two models.

E. None of the above are correct statements about the two models.

Reference no: EM131376588

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