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Line 9: The model features a downward-sloping demand curve (AD) and a horizontal inflation adjustment line (IA). The point where the two lines cross is equal to potential GDP. A shift in either curve will explain the impact on real GDP and inflation in the short run. ===Assumptions=== The AD-AI model depends on the assumption of the monetary policy rule (MPR). The monetary policy rule is that the federal reserve increases interest rates in response to increase in inflation and vice versa. ===Shifts in demand===

AD–IA model: Difference between revisions