Figure 9.5 Alt text for Figure 9.5: In figure 9.5, a graph comparing real GDP and price level.
Long description for Figure 9.5: The x-axis is labelled, real GDP (trillions of 2007 dollars), and the y-axis is labelled, price level (CPI).5 lines are shown; SRAS1, SRAS2, AD1, AD2, and LRAS.Line SRAS1 begins above the vertex and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as AD1, but is plotted to the right.Line SRAS1 intersects line AD1 at point C, more than half way along both the lines.Line SRAS1 intersects line AD2 at point B, approximately 3 quarters of the way along both lines.Line SRAS2 intersects line AD1 at point D, approximately 3 quarters of the way along both lines.Line SRAS2 intersects line AD2 at point A, more than half way along both lines.Line LRAS is perpendicular to the x-axis, passing through the points A and C, and intersecting all the 4 lines.
-Refer to Figure 9.5.Suppose the economy is at point A.If the economy experiences a supply shock, where will the eventual short-run equilibrium be?
A)A
B)B
C)C
D)D
E)None of these points are consistent with a short-run equilibrium following a supply shock.

Question

Figure 9.5  Alt text for Figure 9.5: In figure 9.5, a graph comparing real GDP and price level.
Long description for Figure 9.5: The x-axis is labelled, real GDP (trillions of 2007 dollars), and the y-axis is labelled, price level (CPI).5 lines are shown; SRAS1, SRAS2, AD1, AD2, and LRAS.Line SRAS1 begins above the vertex and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as AD1, but is plotted to the right.Line SRAS1 intersects line AD1 at point C, more than half way along both the lines.Line SRAS1 intersects line AD2 at point B, approximately 3 quarters of the way along both lines.Line SRAS2 intersects line AD1 at point D, approximately 3 quarters of the way along both lines.Line SRAS2 intersects line AD2 at point A, more than half way along both lines.Line LRAS is perpendicular to the x-axis, passing through the points A and C, and intersecting all the 4 lines.
-Refer to Figure 9.5.Suppose the economy is at point A.If the economy experiences a supply shock, where will the eventual short-run equilibrium be?
A)A 
B)B 
C)C 
D)D 
E)None of these points are consistent with a short-run equilibrium following a supply shock.

Quizplus · Accepted Answer

A supply shock typically shifts the aggregate supply curve to the left, indicating a reduction in the total supply of goods and services at any given price level. This shift leads to higher prices and lower output in the short run, moving the equilibrium from point A to a point like B, where the price level is higher, and output is lower compared to the initial equilibrium.

Figure 95 Alt Text for Figure 9