In the 1980s, the federal government undertook a major build-up of the military sector, leading to reports that prices charged by military contractors were spiraling upward. According to production possibilities analysis, this result is not surprising due to:

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD 2 , and that the full-employment level of output is Y. Because of the ratchet effect:

A.  it is impossible to enact fiscal policy that will both reduce output to Y and reduce demand-
pull inflation.
B.  fiscal policy will need to be more contractionary to reduce output to Y than if no ratchet
effect occurred.
C.  tax increases will be more effective at reducing demand-pull inflation than cuts in
government spending.
D.  contractionary fiscal policy that shifts aggregate demand to AD 1 will cause real GDP to fall below its full-employment level.

Other things being equal, how would the market for bicycles be affected by an increase in the availability and number of bicycle paths?

a. An increase in prices and a decrease in the quantity exchanged b. An increase in prices and an increase in the quantity exchanged c. A decrease in prices and a decrease in the quantity exchanged d. A decrease in prices and an increase in the quantity exchanged