Question

When aggregate output is below the natural rate of output, what happens to the inflation rate over time if the aggregate demand curve remains unchanged? Why?

Short answer

If the combination affair remains below the implicit affair. The stipend of the labor will increase at slower pace and affectation will drop within the request.

Step-by-step solution

Concept Introduction 

The aggregate claim is the common claim of the frugality for the latest wares and graces at a given away point of your moment. The aggregate fund is the entire measure of last wares and graces that are supplied into the call of frugality in an exceedingly particular monthly of your moment.

Explanation of Solution   

Also severance are above the natural rate because of which there'll be lack of labor within the request, If the combination affair remains below the implicit affair. The stipend of the labor will increase at slower pace and affectation will drop within the request. As a result, anticipated affectation will go right down to that period and thanks to which aggregate force wind will shift to downcast. the combination force wind will shift to the downcast continuously until the quantum of affair increase to the implicit affair and reaches to equilibrium within the long term.