LAS SAS2130SAS1120SASO110A100FAD290AD1ADO141516171819Real GDP (trillions of 2009 dollars)The figure above shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the U.S. economy. The economy is currently at point A.A demand-pull rise in the price level will initially move the economy to pointE when aggregate demand increases; A when the wage rate risesC when the wage rate rises; D when aggregate demand increasesE when aggregate demand increases; D when the wage rate risesB when aggregate demand decreases; C when the wage rate risesand to pointE.8.Price level (GDP deflator, 2009 100)

Answered: LAS SAS2 130 D SASI 120 SASO 110 A. 100…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

LAS SAS2
130
SAS1
120
SASO
110
A
100
F
AD2
90
AD1
ADO
14
15
16
17
18
19
Real GDP (trillions of 2009 dollars)
The figure above shows the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for the U.S. economy. The economy is currently at point A.
A demand-pull rise in the price level will initially move the economy to point
E when aggregate demand increases; A when the wage rate rises
C when the wage rate rises; D when aggregate demand increases
E when aggregate demand increases; D when the wage rate rises
B when aggregate demand decreases; C when the wage rate rises
and to point
E.
8.
Price level (GDP deflator, 2009 100)

Expert Solution

Step 1 Demand-Pull Inflation

Demand-Pull Inflation:

Demand-pull inflation is a period of inflation that arises from rapid growth in aggregate demand (AD). It occurs when the economy is growing is too fast.

If aggregate demand (AD) rises faster than productive capacity (LRAS), firms will respond by putting up prices and creating inflationary pressure.

Inflation is a rise in the general price level.
Demand-pull inflation – inflation caused by aggregate demand (AD) increasing faster than aggregate supply (AS).

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