Consider the figure below. The situation in Trombli is characterized by SRAS1 and AD1 when there is an increase in the money supply shifting the short-run aggregate supply curve to SRAS2. This will create __________ in the economy. a. stagflationary pressure b. a depression c. inflationary pressure d. recessionary pressure
Consider the figure below. The situation in Trombli is characterized by SRAS1 and AD1 when there is an increase in the money supply shifting the short-run aggregate supply curve to SRAS2. This will create __________ in the economy. a. stagflationary pressure b. a depression c. inflationary pressure d. recessionary pressure
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the figure below. The situation in Trombli is characterized by SRAS1 and AD1 when there is an increase in the money supply shifting the short-run
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Transcribed Image Text:This image depicts a macroeconomic model featuring Aggregate Demand (AD) and Short-Run Aggregate Supply (SRAS) curves.
### Key Points:
1. **Axes**:
- The vertical axis represents the price level (\(P_L\)).
- The horizontal axis represents Real GDP.
2. **Curves**:
- **SRAS Curves (Short-Run Aggregate Supply)**: There are three SRAS curves labeled \(SRAS_1\), \(SRAS_2\), and \(SRAS_3\). These curves slope upward, indicating that as the price level increases, the quantity of goods and services firms are willing to supply also increases.
- **AD Curves (Aggregate Demand)**: There are two AD curves labeled \(AD_1\) and \(AD_2\). These curves slope downward, showing that as the price level decreases, the quantity of goods and services demanded increases.
3. **Equilibrium Points**:
- **Point A**: Intersection of \(AD_1\) and \(SRAS_1\).
- **Point B**: Intersection of \(AD_1\) and \(SRAS_3\).
- **Point C**: Intersection of \(AD_2\) and \(SRAS_2\).
- **Point D**: Intersection of \(AD_1\) and \(AD_2\), but not along a supply curve.
- **Point E**: Intersection of \(AD_2\) and \(SRAS_3\).
4. **GDP Potential Line**: A vertical dashed line labeled "GDP potential" marks the level of output the economy can sustain in the long run without causing inflation.
This diagram can illustrate shifts in supply and demand, showing how they affect the equilibrium price level and output. Each intersection shows potential states of the economy, with movements between these points representing changes due to factors such as policy shifts, external shocks, or changes in consumer behavior.
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