If the AD curve shifts rightward while the AS curve and potential ...

[@Brianna17]

If the AD curve shifts rightward while the AS curve and potential GDP don't change, then
 
  A) there will be no change in real GDP, so the economy is at the trough of the cycle.
  B) the expansion phase of the business cycle occurs.
  C) there will be no change in real GDP, so the economy is at the peak of the cycle.
  D) the economy will move from a peak into recession.
  E) real GDP does not change.

Question 2

What are the costs of inflation? Briefly explain each.
 
  What will be an ideal response?

[fdliggud]

Answer to Question 1

B

Answer to Question 2

The costs of inflation are the tax costs, the shoe-leather costs, the confusion costs, and the uncertainty costs. The tax costs refer to the point that the higher the inflation rate, the lower the after-tax real interest rate. As a result, people decrease their saving and so investment decreases. Shoe-leather costs reflect the costs incurred by people to spend money as rapidly as possible when inflation is high because high inflation means that the value of money is decreasing rapidly. Confusion costs are the result of inflation making it more difficult to use money to compare the costs and benefits of actions, such as saving or investing. Finally, uncertainty costs occur because people are uncertain about the long-term inflation rate. When making an investment or saving decision, people must try to factor in what the inflation rate will be throughout the life of the investment or saving, which is a difficult endeavor.

[@Brianna17]

Correct answers!

[fdliggud]

Great! Please up vote