Use the figure below to answer the following question(s). Figure 10-15
The economy's short-run (SRAS ) and long-run (LRAS) aggregate supply curves are shown in Figure 10-15, along with three alternative aggregate demand curves and the accompanying equilibrium points. At which point will resource prices naturally tend to increase?
A) A
B) B
C) C
D) D

Question

Use the figure below to answer the following question(s). Figure 10-15
 The economy's short-run (SRAS ) and long-run (LRAS) aggregate supply curves are shown in Figure 10-15, along with three alternative aggregate demand curves and the accompanying equilibrium points. At which point will resource prices naturally tend to increase?
A) A 
B) B 
C) C 
D) D

Quizplus · Accepted Answer

At point B, the economy is operating above its potential level of output (shown by the LRAS curve) which means there is upward pressure on resource prices. As the demand for resources increases, their prices will also naturally tend to increase. Points A and C are both at the potential level of output, so there is no reason for resource prices to increase. At point D, the economy is operating below its potential level of output which would actually put downward pressure on resource prices.

Use the Figure Below to Answer the Following Question(s)