Question

What is the intermediate zone of the SRAS curve? Will a rise in output be accompanied by a rise or a fall in the price level in this zone?

a) Zone of underemployment; rise in output, fall in price level
b) Zone of full employment; fall in output, rise in price level
c) Zone of recession; rise in output, rise in price level
d) Zone of inflation; fall in output, fall in price level

Answer 1

In the intermediate zone of the SRAS curve, a rise in output is typically accompanied by a moderate rise in the price level. This zone is not characterized by deep recession or full employment, allowing for output increase with only modest inflation.

Step-by-step explanation:

The intermediate zone of the Short-Run Aggregate Supply (SRAS) curve is where the economy is not in deep recession, nor is it at full employment. During this phase, there's enough slack in the economy that increases in output can occur without significant increases in the price level. In other words, as output rises, the price level may begin to increase but not at a rate that would be considered alarming for inflation.

Answering the student's question, in the intermediate zone of the SRAS curve, a rise in output will be accompanied by a rise in the price level, although this rise is not as steep as it would be near full employment. Therefore, the correct answer to the question is c) Zone of recession; rise in output, rise in price level.

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