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Refer to the Diagram Given Below

Question 5

Multiple Choice

Refer to the diagram given below. Refer to the diagram given below. Assume that nominal wages are initially set on the basis of the price level P<sub>2</sub> and that the economy is initially operating at the full-employment level of output Q<sub>f</sub>.In the short run, an increase in the price level from P<sub>2</sub> to P<sub>3</sub> will: A) shift the aggregate supply curve from AS<sub>2</sub> to AS<sub>3</sub>. B) increase the real output from Q<sub>1</sub> to Q<sub>2</sub>. C) shift the aggregate supply curve from AS<sub>2</sub> to AS<sub>1</sub>. D) increase the real output from Q<sub>f</sub> to Q<sub>2</sub>. Assume that nominal wages are initially set on the basis of the price level P2 and that the economy is initially operating at the full-employment level of output Qf.In the short run, an increase in the price level from P2 to P3 will:


A) shift the aggregate supply curve from AS2 to AS3.
B) increase the real output from Q1 to Q2.
C) shift the aggregate supply curve from AS2 to AS1.
D) increase the real output from Qf to Q2.

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