Chapter 17, Problem 1TY

To determine

To illustrate: That fluctuations happens only in inflation.

Answer to Problem 1TY

The supply curve has been explained.

Explanation of Solution

When the supply curve is vertical, the change in price adjusts any types of fluctuation in growth of aggregate demand, which is explained in the below shown figure. In the figure $x-axis$ gives the measure of output while $y-axis$ provides the price level.

The output supply is fixed, for which the supply curve will be vertical. There is a shift in the demand curve from $D_1\text{ to }{D}_2$ according to increase in the aggregate demand. Also, the price level increases from $P_1\text{ to }{P}_2$ with the increase in demand, and the supply curve is vertical. There will be no change in the output, which remains at $OQ$ level.

  

Economics Concept Introduction

Introduction: The relationship between supply of quantity and cost of goods or services, when represented graphically, it is called a supply curve.