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-Refer to the Above Diagram

question 118

Multiple Choice

  -Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P<sub>2</sub> and that the economy initially is operating at its full-employment level of output Q<sub>f</sub>.In terms of this diagram,the long-run aggregate supply curve: A)  is AS<sub>2</sub>. B)  is a vertical line extending from Q<sub>f</sub> upward through e,b,and d. C)  may be either AS<sub>1</sub>,AS<sub>2</sub>,or AS<sub>3</sub> depending on whether the price level is P<sub>1</sub>,P<sub>2</sub>,or P<sub>3</sub>. D)  is a horizontal line extending from P<sub>2</sub> rightward through f,b,and g.
-Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf.In terms of this diagram,the long-run aggregate supply curve:

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