Refer to the Graph Above

question 22

Multiple Choice

Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth which shifts AS₁ to AS₂. Mainstream economists would suggest that the application of a monetary rule to keep prices constant might produce demand-pull inflation because the investment spending might:

• A) Increase and cause the aggregate demand curve to shift from AD₁ to AD₄
• B) Decrease and cause the investment demand curve to shift from AD₁ to AD₄
• C) Increase and cause the aggregate demand curve to shift from AD₁ to AD₂
• D) Decrease and cause the investment demand curve to shift from AD₁ to AD₂

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Definitions:

Slope

A measure of the steepness or incline of a line, often representing the rate of change in a relationship between two variables.

Horizontal

Relates to a position or direction parallel to the ground or to the bottom edge of a page.

Not Related

A term indicating that two or more items or concepts have no association or link between them.

Degrees of Freedom

The number of independent pieces of information upon which a statistical estimate is based, minus the number of parameters estimated.