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

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 AS₀ to AS₁ to AS₂ 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.