Figure 35-9.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 35-9.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 35-9.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 35-9.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 B on the left-hand graph represents an increase in output and a decrease in price level, which could be the result of a favorable supply shock. However, on the right-hand graph, this movement also shows an increase in inflation rate from point C to D. This indicates a scenario of stagflation, which is characterized by a combination of low economic growth, high unemployment, and rising prices. Therefore, only option C is correct.