-Refer to Figure 15-9.Suppose the economy is in equilibrium with real GDP of $7 trillion.A demand shock shifts the aggregate demand curve to AD₂,increasing real GDP to its full-employment level of $7.2 trillion.In the long run,following the shock,we would expect the
A) aggregate demand curve to shift rightward,further increasing real GDP and the price level
B) aggregate demand curve to shift leftward,returning real GDP to $7 trillion
C) aggregate supply curve to shift downward,returning the price level to 120
D) aggregate supply curve to shift upward,returning real GDP to $7 trillion
E) economy to remain at the new level of output of $7.2 trillion.

Question

-Refer to Figure 15-9.Suppose the economy is in equilibrium with real GDP of $7 trillion.A demand shock shifts the aggregate demand curve to AD₂,increasing real GDP to its full-employment level of $7.2 trillion.In the long run,following the shock,we would expect the
A) aggregate demand curve to shift rightward,further increasing real GDP and the price level 
B) aggregate demand curve to shift leftward,returning real GDP to $7 trillion 
C) aggregate supply curve to shift downward,returning the price level to 120 
D) aggregate supply curve to shift upward,returning real GDP to $7 trillion 
E) economy to remain at the new level of output of $7.2 trillion.

Quizplus · Accepted Answer

In the long run, the economy will return to its full-employment level of output, which is $7.2 trillion in this case. The aggregate demand curve will not shift further, and the aggregate supply curve will shift upward to meet the new level of demand.