The Three Figures Below Show the Phases of a Disinflation

question 108

Multiple Choice

The three figures below show the phases of a disinflation.In part (i) ,the economy is experiencing a sustained inflation at E₁. FIGURE 29-4 Refer to Figure 29-4,part (iii) .Consider the recovery phase of the disinflation process when output is returning from Y₃ to Y*.Real GDP can return to potential either by ________,or by ________.

• A)the AS curve falling slowly back to AS₂; further monetary contraction which shifts the AD curve to AD₂
• B)the AS curve falling slowly back to AS₂; a monetary expansion which shifts the AD curve to AD₂
• C)fiscal policy which causes the AS curve to shift back to AS₂; a monetary expansion which shifts the AD curve to AD₂
• D)legislating a wage-and-price freeze which shifts the AS curve back to AS₂; a further contraction of monetary policy which shifts the AD curve to AD₂
• E)the AS curve drifting upward to AS₃; the AD curve drifting back to AD₁

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Definitions:

Capital Assets (Net)

The total value of a business's long-term assets, including property, plant, and equipment, net of accumulated depreciation.

Functional Currency

The main currency used by a business entity to conduct its economic activities and financial reporting.

Acquisition Differential

The difference between the cost of an acquisition and the fair value of the net identifiable assets of the acquired entity.

Exchange Rates

The value of one currency for the purpose of conversion to another currency.