Sia
Question
Statistics
Posted 7 months ago
Which of the following best describes a relationship that is illustrated in the short-run aggregate supply (SRAS) curve?
Choose 1 answer:
(A) There is a short-run tradeoff between inflation and unemployment
(B) There is a long-run relationship between inflation and unemployment
(C) In order to produce more of one good, you must produce less of another good
(D) As the price level increases, the amount of expenditures in a country decreases
(E) In the long run there is no relationship between output and the price level
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
To determine which option best describes the relationship illustrated in the short-run aggregate supply (SRAS) curve, we need to understand the economic concepts that the SRAS curve represents
step 2
The SRAS curve shows the relationship between the price level and the quantity of goods and services that firms are willing to produce and sell in the short run, holding all else constant
step 3
An upward sloping SRAS curve indicates that as the price level increases, the quantity of output firms are willing to supply also increases. This is because higher prices can improve profit margins, which incentivizes firms to increase production
step 4
The SRAS curve reflects the short-run tradeoff between inflation and unemployment, which is known as the Phillips Curve. When the economy is operating below its potential output, an increase in aggregate demand can lead to higher output and employment without causing much inflation. However, as the economy approaches its potential output, further increases in aggregate demand tend to cause inflation rather than a substantial increase in output or employment
Answer
A
Key Concept
Short-run tradeoff between inflation and unemployment
Explanation
The SRAS curve illustrates the short-run tradeoff between inflation and unemployment, where an increase in aggregate demand can lead to higher output and employment, but as the economy nears its potential, further increases in demand tend to cause inflation.
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