CO a1 Real output Refer to the above diagram and assume that prices and wages ar

Question

CO a1 Real output Refer to the above diagram and assume that prices and wages are flexible both upward and downward in the economy. In the long run AD-AS model O cost-push inflation would involve a rightward shift of curve A, followed by a leftward shift of curve C. O demand-pull inflation would involve a rightward shift of curve A, followed by a rightward shift of curve C. recession would involve a rightward shift of curve D, followed by leftward shifts of curves A and C. recession would involve a leftward shift of curve A followed by a rightward shift of curve C

Explanation / Answer

The correct answer is D. The economy must return to the equilibrium level in the long run. Thus AD must shift leftwards and also AS shifts rightwards to come back to equilibrium. The correct answer is D.

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