-Refer to Exhibit 14-1.Starting from point A,a one-shot,demand-side-induced inflation raises the price level in the economy to P₂.Assuming no other changes,in the long run the economy is likely to settle at point

Question

-Refer to Exhibit 14-1.Starting from point A,a one-shot,demand-side-induced inflation raises the price level in the economy to P<sub>2</sub>.Assuming no other changes,in the long run the economy is likely to settle at point A) A. B) B. C) C. D) D. E) E.

Quizplus · Accepted Answer

In the long run, the economy tends to return to its natural rate of unemployment, with the price level adjusting accordingly. Point B represents this scenario, where the economy settles back to its original level of output but at a higher price level, reflecting the inflationary impact.