Figure 17-3

-In Figure 17-3 above,suppose we are working under the assumption of the Lucas model.It is the year of the presidential election,and fiscal policy becomes more expansionary.If every firm is convinced that its price increase is being duplicated across the economy,we would picture this as a movement between points
A)A and C.
B)A and B.
C)D and B.
D)D and A.
E)A and D.

Question

Figure 17-3
 
-In Figure 17-3 above,suppose we are working under the assumption of the Lucas model.It is the year of the presidential election,and fiscal policy becomes more expansionary.If every firm is convinced that its price increase is being duplicated across the economy,we would picture this as a movement between points
A)A and C. 
B)A and B. 
C)D and B. 
D)D and A. 
E)A and D.

Quizplus · Accepted Answer

In the Lucas model, if firms believe that their price increase is being matched across the economy during an expansionary fiscal policy, especially in a presidential election year, they might interpret this as a general increase in demand rather than a change specific to their firm. This could lead to an increase in both output and prices, represented by a movement from point A to point D on a typical aggregate supply and demand graph. This movement indicates a shift to higher output and price levels, assuming firms across the economy adjust their expectations and output in response to perceived general demand increases.

Figure 17-3 -In Figure 17-3 Above,suppose We Are Working Under the Assumption