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:

Retained Earnings

Cumulative net earnings or profit of a firm after accounting for dividends; they are reinvested in the core business or to pay debt.

Net Income

The net income of a company once all costs and taxes are deducted from the overall revenue.

Fixed Assets

Long-term tangible assets used in operations, such as machinery, buildings, and equipment, which are not expected to be converted into cash in the short term.

Sales Capacity

The maximum level of sales that a company can achieve within a given period under normal operating conditions.