Use the following to answer questions: Figure: Policy Alternatives -(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD₁ and SRAS₁. If the economy is left to correct itself: A) real interest rates will fall, which will shift SRAS rightward. B) lower wages will result in a gradual shift from SRAS₁ to SRAS₂. C) long-run equilibrium will be established at Y_P and P₃. D) the aggregate demand curve will shift leftward.

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Lower wages will result in a gradual shift of the SRAS curve to the right as firms' costs decrease, allowing the economy to self-correct towards long-run equilibrium.

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