Suppose the BLS announces that price levels throughout the economy have increased. What response would we expect to see in the AD/AS model?
A) The long-run aggregate supply curve would shift to the left.
B) The aggregate demand curve would shift to the left.
C) The short-run aggregate supply curve would shift to the left.
D) None of these are true.

Question

Quizplus · Accepted Answer

An increase in price levels throughout the economy, as announced by the BLS, is represented in the AD/AS model by a movement along the aggregate demand or aggregate supply curves, not by a shift of these curves. The options given describe shifts in the curves, which are responses to other types of economic changes, not to a change in the price level itself.

Suppose the BLS Announces That Price Levels Throughout the Economy