Refer to the Diagram $\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 3 }$

question 176

Multiple Choice

Refer to the diagram. Assume that nominal wages initially are set based on the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f. In the short run, costpush inflation could best be shown as

• A) a leftward shift of aggregate supply from A \(\mathrm { AS } _ { 2 } \text { to } \mathrm { AS } _ { 3 }\)
• B) a move from b to c on A \(\mathrm { AS } _ { 2 }.\)
• C) a move from b to c to d.
• D) a move from b to f to d.

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Definitions:

Effective Rate

The actual interest rate realized on an investment, taking into account the effect of compounding over a given time period.

Bond Premium

The surplus value of a bond beyond its principal amount when sold in the market.

Term Bond

Bonds that have a specified maturity date on which the principal or face value is payable to bondholders.

Effective Rate

A more accurate measure of interest or return that takes into account the effects of compounding over a specific period.