-Refer to the Above Diagram

question 80

Multiple Choice

-Refer to the above diagram.The initial aggregate demand curve is AD₁ and the initial aggregate supply curve is AS₁.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD₁ to AD₂:

• A) real output will rise above Q_f.
• B) the price level will rise from P₁ to P₂.
• C) it is possible that aggregate supply will shift rightward from AS₂ because nominal wage demands will rise.
• D) the price level will rise from P₂ to P₃.

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