Use the figure below to answer the following questions.
Figure 10.3.3
-Refer to Figure 10.3.3.In which of the graphs would we predict that eventually the price level will rise and real GDP will fall, everything else remaining the same?
A)a only
B)b only
C)c only
D)d only
E)both c and d

Question

Use the figure below to answer the following questions.
  Figure 10.3.3
-Refer to Figure 10.3.3.In which of the graphs would we predict that eventually the price level will rise and real GDP will fall, everything else remaining the same?
A)a only 
B)b only 
C)c only 
D)d only 
E)both c and d

Quizplus · Accepted Answer

In both graphs c and d, the aggregate demand curve shifts to the left resulting in a decrease in both real GDP and the price level. This is also known as a recessionary gap. As the economy adjusts, the price level will eventually rise as firms reduce their output and raise prices, thus moving back towards long-run equilibrium.

Use the Figure Below to Answer the Following Questions