Refer to the Diagram and Assume That Prices and Wages

question 171

Multiple Choice

Refer to the diagram and assume that prices and wages are flexible both upward and downward in the economy. In the extended AD-AS model,

• A) demand-pull inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C.
• B) cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C.
• C) recession would involve a leftward shift of curve A, followed by a leftward shift of curve C.
• D) recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C.

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