Figure 22-8. 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 22-8. 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
A)the outcome of a favorable supply shock.
B)falling inflation.
C)stagflation.
D)All of the above are correct.

Question

Figure 22-8. 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 22-8. 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
A)the outcome of a favorable supply shock. 
B)falling inflation. 
C)stagflation. 
D)All of the above are correct.

Quizplus · Accepted Answer

A movement from point A to point B represents a shift of the AD2 curve to the right, causing an increase in output and inflation. A movement from point C to point D represents a shift of the SRAS curve to the left, causing a decrease in output and an increase in inflation. This situation, where inflation and output move in opposite directions, is known as stagflation.