Consider the AD/AS Model Below with a Constant Rate of Inflation.No

question 98

Multiple Choice

Consider the AD/AS model below with a constant rate of inflation.No exogenous AD or AS shocks are occurring. FIGURE 29-1 Refer to Figure 29-1.Assume there are no demand or supply shocks present in this analysis.What explains the movement of the AS curve from AS₀ to AS₁ to AS₂ and so on?

• A)Unit costs are rising due to excess demand for labour.
• B)Expectations of inflation are causing wage costs to rise continually.
• C)Unit costs are rising because real wages are rising faster than nominal wages.
• D)Expectations of inflation are causing a perpetual inflationary output gap.
• E)The AS curve shifts up as potential GDP (Y*)is continuously rising.

---

Definitions:

Progressive

A tax system in which the tax rate increases as the taxable amount increases, often aimed at reducing income inequality.

Payroll Taxes

Contributions required from employers and their workers, determined as a portion of the payroll expenses incurred by the employer.

Workers

Individuals engaged in any form of productive activity, typically in exchange for wages or salaries.