_________ inflation will eventually move the economy pictured in the diagram above from short-run equilibrium at point ________ to long-run equilibrium at point ________,
A) Rising;A;C
B) Rising;A;B
C) Falling;A;C
D) Falling;A;B
E) Falling;B;C

Question

Quizplus · Accepted Answer

Rising inflation will cause prices to increase, which will shift the short-run aggregate supply (SAS) curve to the left. This movement will result in a new short-run equilibrium at point A with both higher prices and lower output. In the long run, however, wages and other input prices will adjust to the higher prices, causing the SAS curve to shift back to its original position, ending up at point C. Therefore, A to C is the transition that will occur as the economy adjusts to higher inflation.

_________ Inflation Will Eventually Move the Economy Pictured in the Diagram