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Refer to the Above Diagram

Question 37

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Refer to the above diagram.The initial aggregate demand curve is AD<sub>1</sub> and the initial aggregate supply curve is AS<sub>1</sub>.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD<sub>1</sub> to AD<sub>2</sub>: A) real output will rise above Q<sub>f</sub>. B) the price level will rise from P<sub>1</sub> to P<sub>2</sub>. C) it is possible that aggregate supply will shift rightward from AS<sub>2</sub> because nominal wage demands will rise. D) the price level will rise from P<sub>2</sub> to P<sub>3</sub>. Refer to the above diagram.The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1.If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD1 to AD2:


A) real output will rise above Qf.
B) the price level will rise from P1 to P2.
C) it is possible that aggregate supply will shift rightward from AS2 because nominal wage demands will rise.
D) the price level will rise from P2 to P3.

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