Refer to Figure 2-4, Graph (a) and Graph (b)

Economics Jan 26, 2021

Refer to Figure 2-4, Graph (a) and Graph (b) . A shift of the economy's production possibilities frontier from Graph (a) to Graph (b) could be caused by a. an improvement in donut production technology.
b. an improvement in both donut and coffee production technology. c. unemployment. d. an improvement in coffee production technology.

Expert Solution

As the price increases, the aggregate supply will increase. This is because the price level has risen and individuals have mistakenly assumed about price level, prices are sticky. These factors increase the quantity supplies.

So, the correct options are

A) Price level has risen

B) People have misperception about price level

D) Prices are sticky.

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