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

Point a is to the left of the long-run aggregate supply curve (LRAS). This suggests that there exists a temporary gap between aggregate demand and supply in the short run, which leads to an increase in prices and resource prices in this case. As resource prices increase, the SRAS curve shifts upward, and the economy moves along the AD curve toward point c where it intersects with the new SRAS curve. Therefore, the best answer is C, which states that the economy would tend to increase and move toward point c.

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