Question 8 (1 point) se the economy of Summerisnear is experiencing an inflation

Question

Question 8 (1 point) se the economy of Summerisnear is experiencing an inflationary gap. If the economy is left alone and allowed to fix itself, 1) wages will be driven up, the costs of production will ise, and AD will shift to the left. 2) wages will be driven up, the costs of production will rise, and AS will shift to the left. 3) wages will be driven down, the costs of production will fall, and AS will shift to the 4) wages will be driven down, the costs of production will fall, and AD will shift to the right. right.

Explanation / Answer

An inflationary gap causes inflation (higher prices) in the economy. This in turn leads to an increase in resource prices, leading to higher cost of production, Due to increase in cost pf production, firm will produce less. As a result, supply will be reduced at all price levels. This means that Aggregate supply curve (AS) shifts to the left. So option 2 is correct.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.