Refer to the diagram. The initial aggregate demand curve is AD 1 and the initial aggregate supply curve is AS 1 . If government offsets the decline in real output resulting from short-run cost-push inflation by increasing aggregate demand from AD 1 to AD 2





A.  real output will rise above Q f .

B.  the price level will rise from P 1 to P 2 .

C.  it is possible that aggregate supply will shift rightward from AS 2 because nominal wage

demands will rise.

D.  the price level will rise from P 2 to P 3 .


D.  the price level will rise from P 2 to P 3 .

Economics

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