Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 -Refer to Figure 12.8.This economy cannot continue to produce Y₁ (or at point B)because A)the price of raw material and wages will increase shifting the aggregate supply curve to AS₁. B)the price of inputs will decrease,shifting the aggregate supply curve to AS₂. C)the price of raw material will increase,shifting the aggregate demand curve to AD₂. D)all of the above

Question

Quizplus · Accepted Answer

At point B, the economy is producing at its full potential, which means there is no excess capacity left. If the price of raw materials and wages increase, the production cost for firms will increase as well, leading to a decrease in supply and a shift in the aggregate supply curve to the left (from ASS to ASS'). This will result in higher prices and lower output, making it impossible for the economy to continue producing at point B. Therefore, only option A) is the correct choice. Option B) is incorrect because a decrease in input prices would shift the aggregate supply curve to the right, making it easier to produce at point B. Option C) is also incorrect because an increase in raw material prices would shift the aggregate demand curve to the left, which would lead to a decrease in output and make it more difficult to produce at point B.

Refer to the Information Provided in Figure 12