In the medium run, if GDP goes down but the price level goes up,
A)the AD-curve must have shifted to the right
B)the AD-curve must have shifted to the left
C)the AS-curve must have shifted to the right
D)the AS-curve must have shifted to the left
E)the AD-curve and the AS-curve must have both shifted to the right

Question

Quizplus · Accepted Answer

If GDP goes down but the price level goes up, it indicates an increase in inflation with a decrease in output. This suggests a leftward shift in the aggregate supply (AS) curve, which means the cost of production has gone up, resulting in a lower level of output at every price level. The leftward shift in AS curve causes a decrease in equilibrium GDP and an increase in the price level, leading to stagflation. The aggregate demand (AD) curve is unchanged in this scenario because AD curves show the relationship between output and the price level in the short run, whereas this question refers to the medium run.

In the Medium Run, If GDP Goes Down but the Price