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Refer to the Graph Above

Question 98

Multiple Choice

Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD<sub>1</sub> and AS<sub>1</sub> curves intersect. If cost-push inflation occurs and the government adopts a hands-off policy approach, then in the long run the price level will be at: A) P<sub>1</sub>, and output will be at Q<sub>1</sub> B) P<sub>3</sub>, and output will be at Q<sub>1</sub> C) P<sub>2</sub>, and output will be at Q<sub>2</sub> D) P<sub>3</sub>, and output will be at Q<sub>3</sub> 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 adopts a "hands-off" policy approach, then in the long run the price level will be at:


A) P1, and output will be at Q1
B) P3, and output will be at Q1
C) P2, and output will be at Q2
D) P3, and output will be at Q3

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