Please do fast ASAP fast To fight an on-going 10% inflation, the government makes raising wages or pricesillegal. However, the government continues to increase the money supply (andhence aggregate demand) by 10% per year. The economy starts atfull-employment output, which remains constant. This is shown by point 'B'.Price level, P150-LRAS140-130-a. Using the Keynesian AD-AS graph to the right, determine the short-runequilibrium point based on the policy described above.120-110-O A. Point AABO B. Point D100-SRASO C. Point E90-EO D. Point C80-O E. Point B70-b. After several years in which the controls have kept prices from rising, thegovernment declares victory over inflation and removes the controls. The long-runequilibrium will occur at:60-AD, ADO AD250-Output, Y (Trillions $)O A. Point EO B. Point CC. Point AO D. Point BO E. Point D

An aggregate demand curve shows the inverse relationship between the price level and the total…

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Business

Economics

Please do fast ASAP fast

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles

Section: Chapter Questions

Problem 9E

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

Please do fast ASAP fast

To fight an on-going 10% inflation, the government makes raising wages or prices
illegal. However, the government continues to increase the money supply (and
hence aggregate demand) by 10% per year. The economy starts at
full-employment output, which remains constant. This is shown by point 'B'.
Price level, P
150-
LRAS
140-
130-
a. Using the Keynesian AD-AS graph to the right, determine the short-run
equilibrium point based on the policy described above.
120-
110-
O A. Point A
A
B
O B. Point D
100-
SRAS
O C. Point E
90-
E
O D. Point C
80-
O E. Point B
70-
b. After several years in which the controls have kept prices from rising, the
government declares victory over inflation and removes the controls. The long-run
equilibrium will occur at:
60-
AD, ADO AD2
50-
Output, Y (Trillions $)
O A. Point E
O B. Point C
C. Point A
O D. Point B
O E. Point D

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