Question

Refer to the figure above. if the economy is operating at full employment when its aggregate demand curve is ad2, then a further increase in consumption and investment spending will cause: cost-push inflation, and the new equilibrium output will be more than q2 demand-pull inflation, and the new equilibrium output will be less than q2 cost-push inflation, and the new equilibrium output will be less than q2 demand-pull inflation, and the new equilibrium output will be more than q2

Answer 1

If the economy is operating at full employment when its aggregate demand curve is ad2, then a further increase in consumption and investment spending will cause, the new equilibrium output will be less than the q2 cost-push inflation, and the new equilibrium output will be more than the q2.