monikasolanki
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Can anyone explain how simple backward looking inflation expectations help aggregate supply return back to long run equilibrium?
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Puddles the Monkey
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Hi - sorry you haven't had a response to this yet. I'm just going to bump the thread in the hope that someone sees this and can help
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jpt4749
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Inflation expectations can be divided into 2 types

1. Forward looking : aggregate supply shifts in advance of anticipated change in aggregate demand so the process takes place in 1 steps meaning the change is vertical

2. Backward looking : aggregate supply adjusts to new equilibrium after aggregate demand has changed so there are 2 steps in the movement.
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