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 at a real GDP level of Y₁. The economy will correct itself: A) rapidly, without use of fiscal policy. B) in the long run as wages fall. C) in the short run as wages rise. D) because the aggregate demand curve shifts.

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In the long run, wages will fall causing a shift in the aggregate supply curve. This will cause the economy to correct itself to the full employment level of GDP.

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