Refer to the Diagram Given Below

question 19

Multiple Choice

Refer to the diagram given below. Assume that the nominal wages of workers are initially set on the basis of the price level P₂ and that the economy is initially operating at its full-employment level of output Q_f.In the long run, demand-pull inflation could best be shown as:

• A)a movement from point b to point c on AS₂.
• B)a movement from point a to point b.
• C)a shift of the aggregate supply curve from AS₂ to AS₁.
• D)a movement from point b to point d.

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to market balance.

Interest Rate

The percentage of an amount of money charged for its use over a specified period of time, often expressed as an annual percentage.

Gnome Molds

Tools or containers used to shape garden gnome statues during their production process.

Plaster

A mixture of water, lime, or gypsum, sand, and possibly other materials, used in construction and repair of buildings for coatings, molding, or casting surfaces.