Refer to the graph. Stag?ation in the short run is best represented as resulting from a shift of
A) $A D _ { 1 } \text { to } A D _ { 2 } \text {, given a stable } A S _ { 1 } \text { curve. }$
B) $A D _ { 2 } \text { to } A D _ { 1 } \text {, given a stable } A S _ { 1 } \text { curve. }$
C) $A S _ { 1 } \text { to } A S _ { 2 } \text {, given a stable } A D _ { 1 } \text { curve. }$
D) $\mathrm { AS } _ { 2 } \text { to } A S _ { 1 } \text {, given a stable } A D _ { 1 } \text { curve. }$

Question

Refer to the graph. Stag?ation in the short run is best represented as resulting from a shift of
A) $A D _ { 1 } \text { to } A D _ { 2 } \text {, given a stable } A S _ { 1 } \text { curve. }$ 
B) $A D _ { 2 } \text { to } A D _ { 1 } \text {, given a stable } A S _ { 1 } \text { curve. }$ 
C) $A S _ { 1 } \text { to } A S _ { 2 } \text {, given a stable } A D _ { 1 } \text { curve. }$ 
D) $\mathrm { AS } _ { 2 } \text { to } A S _ { 1 } \text {, given a stable } A D _ { 1 } \text { curve. }$

Quizplus · Accepted Answer

Stagflation is a situation in which the economy experiences both high inflation and high unemployment. This can occur when there is a negative supply shock, such as an increase in the price of oil or other key inputs. The negative supply shock results in a shift of the AS curve to the left, from AS1 to AS2. This leads to a higher price level (inflation) and lower output (unemployment) in the short run, as shown in the graph. Therefore, the correct choice is C, where there is a shift of AS1 to AS2, given a stable AD1 curve.

Refer to the Graph AD1 to AD2, given a stable AS1 curve. A D _ { 1 } \text { to } A D _ { 2 } \text {, given a stable } A S _ { 1 } \text { curve. }AD1​ to AD2​, given a stable AS1​ curve.

Refer to the Graph $A D _ { 1 } \text { to } A D _ { 2 } \text {, given a stable } A S _ { 1 } \text { curve. }$