How are demand-pull and cost-push inflation reflected in terms of the AD-AS model?
What will be an ideal response?
Demand-pull inflation is reflected as a rightward shift of the AD curve that expands real GDP but also increases the price level. Cost-push inflation is reflected as a leftward shift of the AS curve which drives the price level up.
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What adjustments must be made to total income to make it equal GDP?
What will be an ideal response?
The New York Times reported in August 1997 that over one-third of all bottled water sold in the United States is simply filtered tap water. For example, the Everest brand of water comes from the municipal water supply of Corpus Christi, Texas. Explain
why consumers will pay more than $1 for a quart of water, when they could get basically the same quart directly from the tap for the smallest fraction of a penny.
Having an absolute advantage in the production of a good implies that a country
a. should specialize in the production of the good b. is able to produce the good with fewer resources than another country c. should not specialize in the production of the good d. also has the comparative advantage in the production of the good e. cannot have an absolute advantage in the production of the good
List some of the reasons why GDP should not be considered an effective measure of the standard of living in a country.
What will be an ideal response?