Use the figure below to answer the following question(s). Figure 10-9
If the economy were operating at point a in Figure 10-9, resource prices would tend to
A) decrease and move the economy toward point c.
B) decrease and move the economy toward point b.
C) increase and move the economy toward point c.
D) increase and move the economy toward point b.

Question

Use the figure below to answer the following question(s). Figure 10-9
 If the economy were operating at point a in Figure 10-9, resource prices would tend to
A) decrease and move the economy toward point c. 
B) decrease and move the economy toward point b. 
C) increase and move the economy toward point c. 
D) increase and move the economy toward point b.

Quizplus · Accepted Answer

If the economy were operating at point a, there is excess supply of resources, meaning that resource prices would decrease. As resource prices decrease, firms are likely to increase their demand for these resources, leading to an increase in their prices (as shown by the shift from AS1 to AS2). This movement would shift the economy towards point c, where aggregate output and resource prices are higher. Therefore, the correct choice is C.

Use the Figure Below to Answer the Following Question(s)