Use the figure below to answer the following questions. Price level (GDP deflato

Question

Use the figure below to answer the following questions. Price level (GDP deflator, 2002 100) LAS 130 120 110 100 90 SAS SAS AD 350 400 450 500 550 600 Real GDP (billions of 2002 dollars) Figure 1 2) Refer to Figure 1. The economy is in long-run equilibrium. If the short-run aggregate supply curve shifts leftward from SASo to SAS1, ceteris paribus, then people expected A) a 10 percent inflation. B) the price level to rise to 110. C) the real wage rate to fall by 10 percent. D) a real GDP decrease of $50 billion E) a 15 percent inflation

Explanation / Answer

Correct Answer:

A

Working note:

Initial price level at A = 100

Final price level at B = 110

Inflation rate = (110-100)/100 = 10%

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