Question

от тот отрост Quiz OTPPUUIN The figure to the right shows the result of an increase in aggregate demand from AD, to AD, . In its new short run equilibrium the economy is resting vits potential output. AS(Long run) AS. (Short run) Because the economy is producing beyond its potential output level, input prices and hence production costs are being pushed upward. Using either the line drawing tool or the 3-point curved line drawing tool, illustrate the impact of rising production costs. Properly label your new line or curve. Note: Carefully follow the instructions above and only draw the required object. Price level, P According to your figure, the eventual long-run impact of the increase in aggregate demand is VADO O A. higher output, unchanged prices. O B. higher prices, unchanged output. O c. higher prices, lower output. OD. higher prices, higher output. Yo Y, Aggregate output (income), Y

Answer 1

(1) When AD1 intersects AS0 to the right of LRAS, economy rests above (higher than) potential output.

(2) Increase in production cost shifts AS0 leftward to AS1, with still higher price level P2 and potential GDP Y0.

AS(Long run) ASO (Short run) AS1 Price level, P AD1 LADO Yo Y, Aggregate output (income), Y

(3) (B)

Long run result is unchanged output and higher price.