The dynamic aggregate demand shows the relationship between the rate of inflation and the change in aggregate demand. This is represented by
Y = Y-1 + ϕ (m - π) + σ f
Where m is the growth rate of the nominal money stock, π is the rate of inflation and σ f demotes the impact of fiscal expansion on demand, Y.
Therefore, (m - π) > 0 implies increase in real balance. For aggregate demand to increase, other things remaining same,
1
ϕ > 0
2
ϕ < 0
3
ϕ = 0
4
ϕ = is indeterminate