The Three Figures Below Show the Phases of a Disinflation

question 119

Multiple Choice

The three figures below show the phases of a disinflation. In part i) , the economy is experiencing a sustained inflation at E 1.
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:

Tier 2 Environmental Costs

The indirect costs associated with environmental impacts and resource use that are not directly tied to a company's operations, such as societal or external environmental costs.

Depreciation

A method of allocating the cost of a tangible asset over its useful life, reflecting the loss of value over time due to factors like age, wear and tear, or obsolescence.

Environmental Costs

Expenses associated with the negative effects of business practices on the environment, including cleanup costs, fines, and costs for environmentally friendly operations.

Abnormal Spoilage

Waste or loss in production that exceeds the expected level of spoilage under normal operating conditions.