The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.?Figure 8.3

-In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation)?
A) AS₁ to AS₂
B) AD₁ to AD₂
C) AD₂ to AD₁
D) AD₂ toAD₃
E) AS₁ to AS₃

Question

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.?Figure 8.3
 
-In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation)?
A) AS₁ to AS₂ 
B) AD₁ to AD₂ 
C) AD₂ to AD₁ 
D) AD₂ toAD₃ 
E) AS₁ to AS₃

Quizplus · Accepted Answer

A shift from AS₁ to AS₃ would result in stagflation because it represents a decrease in aggregate supply due to factors such as an increase in input prices or a decrease in productivity. This would lead to a decrease in real GDP and an increase in the price level, causing both economic stagnation and inflation. Shifting either aggregate demand or supply towards the right would result in an increase in real GDP and the price level, which would not necessarily result in stagflation.

The Figure Given Below Represents the Equilibrium Real GDP and Price