The AD-AS model predicts that a positive AD shock will cause the price level to _____ from the initial equilibrium level. But, the model is silent about how fast the price level will _____from the initial to the new level; the model cannot explain _____.
A) increase; increase; the inflation rate
B) increase; increase; the price level
C) decrease; decrease; the inflation rate
D) increase; increase; stagflation

Question

Quizplus · Accepted Answer

The AD-AS model predicts that a positive aggregate demand (AD) shock will cause the price level to increase from the initial equilibrium level. However, the model does not specify the speed at which the price level will adjust to the new equilibrium, nor can it explain the inflation rate directly.

The AD-AS Model Predicts That a Positive AD Shock Will