Figure 18-1

-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising.If contractionary policy is used to move the economy back to long run equilibrium,this would be depicted as a movement from ________ using the basic AD-AS model in the figure above.

Question

Figure 18-1
 
-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising.If contractionary policy is used to move the economy back to long run equilibrium,this would be depicted as a movement from ________ using the basic AD-AS model in the figure above.

Quizplus · Accepted Answer

If wages and prices are rising, then the short-run aggregate supply (SRAS) curve would shift leftward, from SRAS1 to SRAS2. To bring the economy back to long-run equilibrium, contractionary policy would be needed to decrease aggregate demand. This would lead to a movement from point C to point B on the AD-AS model.

Figure 18-1 -Refer to Figure 18-1.Suppose the Economy Is in Short-Run Equilibrium