Figure 10-5

In Figure 10-5, which graph best illustrates the situation of an economy near full employment that experiences an increase in autonomous consumer spending?

Question

Figure 10-5

In Figure 10-5, which graph best illustrates the situation of an economy near full employment that experiences an increase in autonomous consumer spending?

Quizplus · Accepted Answer

Graph (2) shows an economy near full employment with an upward sloping short-run aggregate supply curve (SRAS) and vertical long-run aggregate supply curve (LRAS). An increase in autonomous consumer spending would shift the aggregate demand curve (AD) to the right, causing an increase in both real GDP and the price level. This is shown by a movement from point A to point B along the SRAS curve. Graphs (1), (3), and (4) either show an economy operating below full employment or have a downward sloping SRAS curve, which is not consistent with the scenario described.

Figure 10-5 in Figure 10-5, Which Graph Best Illustrates the Situation of Illustrates