Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect. If cost-push inflation occurs and the government subsequently implements expansionary policy, then the effect of such policy is to shift: A) AD₁ to AD₂, which increases the price level from P₁ to P₂, and increases real domestic output from Q₃ to Q₂ B) AS₁ to AS₂, which increases the price level from P₁ to P₂, and decreases real output from Q₁ to Q₂ C) AD₁ to AD₂, which increases the price level from P₂ to P₃, and increases real output from Q₂ to Q₁ D) AS₂ to AS₃ which increases the price level from P₂ to P₃, and decreases real output from Q₂ to Q₃

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The Answer of Refer to the graph above. Suppose that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect. If cost-push inflation occurs and the government subsequently implements expansionary policy, then the effect of such policy is to shift: A) AD₁ to AD₂, which increases the price level from P₁ to P₂, and increases real domestic output from Q₃ to Q₂ B) AS₁ to AS₂, which increases the price level from P₁ to P₂, and decreases real output from Q₁ to Q₂ C) AD₁ to AD₂, which increases the price level from P₂ to P₃, and increases real output from Q₂ to Q₁ D) AS₂ to AS₃ which increases the price level from P₂ to P₃, and decreases real output from Q₂ to Q₃

Refer to the Graph Above