Refer to the Diagram Given Below

question 18

Multiple Choice

Refer to the diagram given below. Assume that the nominal wages of workers in an economy are initially set on the basis of the price level P₂ and that the economy is initially operating at the full-employment level of output Q_f.In the short run, an increase in the price level from P₂ to P₃ will:

• A)shift the aggregate supply curve from AS₂ to AS₃.
• B)increase the real output from Q₁ to Q₂.
• C)shift the aggregate supply curve from AS₂ to AS₁.
• D)increase the real output from Q_f to Q₂.

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Definitions:

Economic Power

The capability of entities like countries, corporations, or individuals to influence or control market conditions, including prices, supply, and demand.

Freedom Of Enterprise

The freedom of firms to obtain economic resources, to use those resources to produce products of the firms’ own choosing, and to sell their products in markets of their choice.

Individual Firms

Separate business entities that produce goods or provide services in an economy.

Laissez-Faire Capitalism

An economic system where private parties are free from government intervention in the production and distribution of goods and services, barring basic regulations.