Figure 12.1 -Refer to Figure 12.1..Suppose the Economy Is Initially at Full

question 66

Multiple Choice

Figure 12.1

-Refer to Figure 12.1..Suppose the economy is initially at full employment with real GDP equal to potential GDP,and the expected inflation rate equal to the actual inflation rate.If an economic shock causes the IS curve to shift from IS₁ to IS₂,this will

• A) push the economy down the Phillips curve, raising the inflation rate.
• B) push the economy up the Phillips curve, raising the inflation rate.
• C) push the economy down the Phillips curve, lowering the inflation rate.
• D) push the economy up the Phillips curve, lowering the inflation rate.

---

Definitions:

Stock Price

The cost of purchasing a share of a company's stock on the open market, dictated by supply and demand dynamics.

Intrinsic Value

The actual, inherent value of an asset, determined through fundamental analysis without reference to its market value.

Call Option

A financial contract granting the buyer the right to buy an asset at a specified price before a set date.

Exercise Price

The cost at which the person holding the option has the right to purchase (in the case of a call option) or sell (in the case of a put option) the underlying asset.