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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Graphically show each of the following:

  1. a. Continued inflation due to supply-side factors
  2. b. One-shot, demand-induced inflation
  3. c. One shot, supply-induced inflation

(a)

To determine

Graphical representation of continued inflation due to supply-side factors.

Explanation

The continued inflation due to supply-side factors can be illustrated in the following figure:

Figure 1

In Figure 1, the horizontal axis indicates real GDP, and vertical axis indicates price level. The SRAS is the short-run aggregate supply curve, and LRAS is the long-run aggregate supply curve. At the beginning, the economy is at point 1, where the economy is in full employment level of output or natural rate of unemployment. When SRAS moves to the left from SRAS1 to SRAS2, which is at point 2. At this point, the unemployment is more than that of the natural rate of unemployment. As unemployment increases, wage rate declines, and the economy moves back to Point 1...

(b)

To determine

Graphical representation of one-shot, demand-induced inflation.

(c)

To determine

Graphical representation of one-shot, supply-induced inflation.

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