34 a 012246 Real Output Refer to the diagram and assume that

34 a. 01:22:46 Real Output Refer to the diagram and assume that prices and wages are flexible both upward and downward in the economy. In the extended AD-AS model, Multiple Choice recession would involve a leftward shift of curve A, followed by a leftward shift of curve C demand-pull inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C. cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C.

Solution

(34) Option (2)

During demand-pull inflation, aggregate demand rises, so AD curve (Curve A) shifts rightward in short run. In long run, higher price level increases cost of inputs and firms lower production, reducing aggregate supply. Short run aggregate supply curve (Curve C) shifts leftward.

(35) Option (2)

When production capacity increases, PPF shifts rightward (from AB to CD) and potential GDP increases (from X to Y).

(36) Option (4)

In year 2, aggregate demand was higher, long-run aggregate supply (potential GDP) was higher and shifted rightward, real GDP was higher and price level was higher, indicating economic growth and inflation.

(37) Option (3)

An expansionary monetary policy will increase money supply, raising aggregate demand which will increase inflation, increase real GDP and decrease unemployment.

NOTE: As per Chegg Answering Policy, first 4 questions are answered.