Consider the AD/AS Model Below with a Constant Rate of Inflation.No

question 89

Multiple Choice

Consider the AD/AS model below with a constant rate of inflation.No exogenous AD or AS shocks are occurring. FIGURE 29-1
-Refer to Figure 29-1.Assume there are no demand or supply shocks present in this analysis.What explains the movement of the AS curve from to to and so on?

• A)unit costs are rising due to excess demand for labour
• B)expectations of inflation are causing wage costs to rise continually
• C)unit costs are rising because real wages are rising faster than nominal wages
• D)expectations of inflation are causing a perpetual inflationary output gap
• E)the AS curve shifts up as potential GDP (Y*)is continuously rising

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