Figure 17-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."

-Refer to Figure 17-8. A movement of the economy from point A to point B, and at the same time a movement from point C to point D, would be described as

Question

Figure 17-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."
  
-Refer to Figure 17-8. A movement of the economy from point A to point B, and at the same time a movement from point C to point D, would be described as

Quizplus · Accepted Answer

A movement from point A to point B indicates a shift in the aggregate-demand curve from AD1 to AD2. This leads to an increase in the price level from P1 to P2 and an increase in output from Y1 to Y2. At the same time, a movement from point C to point D indicates a leftward shift in the short-run aggregate-supply curve due to a decrease in the availability of factors of production or an increase in their costs. This leads to a decrease in output from Y1 to Y3 and an increase in the price level from P1 to P3. Therefore, the economy experiences a combination of rising inflation and falling output, which is the definition of stagflation.