Refer to the Graph Above

question 97

Multiple Choice

Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect. If cost-push inflation occurs and the government subsequently implements expansionary policy, then the effect of such policy is to shift:

• A) AD₁ to AD₂, which increases the price level from P₁ to P₂, and increases real domestic output from Q₃ to Q₂
• B) AS₁ to AS₂, which increases the price level from P₁ to P₂, and decreases real output from Q₁ to Q₂
• C) AD₁ to AD₂, which increases the price level from P₂ to P₃, and increases real output from Q₂ to Q₁
• D) AS₂ to AS₃ which increases the price level from P₂ to P₃, and decreases real output from Q₂ to Q₃

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Definitions:

Binet

Binet, Alfred (1857-1911), was a French psychologist who, together with Theodore Simon, developed the first practical IQ test, the Binet-Simon scale.

Intelligence Test

A standard assessment tool designed to measure cognitive abilities, such as reasoning, problem-solving, and understanding complex ideas.

Reasoning

The process of figuring out the implications of particular beliefs.

Abstract Thinking

The ability to think about objects, principles, and ideas that are not physically present, a higher-level cognitive skill enabling conceptual understanding.