Question

Within the AD-AS model, a phenomenon known as

Q: Answer-Within the AD-AS model, a phenomenon known as stagflation is best represented by a shift in which cu...

Solution Stagflation is characterized by the simultaneous occurrence of stagnation falling outputGDP and inflation rising prices. This outcome is typically caused by a negative supply shock e.g., a sudden increase in oil prices, wage demands, or natural disasters, which makes production more expensive at every price level. SRAS Shift A negative supply shock shifts the Short-Run Aggregate Supply SRAS curve to the left. Equilibrium Effect This shift causes the price level to rise inflation and the level of output to fall stagnationrecession.

stagflation is best represented by a shift in which curve, and with what consequence for the short-run equilibrium?

A Aggregate Demand (AD) shifts right, causing higher inflation and higher output.

B Aggregate Demand (AD) shifts left, causing lower inflation and lower output.

C Short-Run Aggregate Supply (SRAS) shifts left, causing higher inflation and lower output.

D Short-Run Aggregate Supply (SRAS) shifts right, causing lower inflation and lower output.

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