Figure 9.1

-Refer to Figure 9.1.Assume the economy is initially at point A.The eventual change from a shock that increases investment expenditure is best represented by which long-run equilibrium combination of price level and real GDP?

Question

Figure 9.1
Figure 9.1 -Refer to Figure 9.1.Assume the economy is initially at point A.The eventual change from a shock that increases investment expenditure is best represented by which long-run equilibrium combination of price level and real GDP? A) P₂; Y₂ B) P₃; Y₁ C) P₁; Y₂ D) P₂; Y₁

Figure 9.1 -Refer to Figure 9.1.Assume the economy is initially at point A.The eventual change from a shock that increases investment expenditure is best represented by which long-run equilibrium combination of price level and real GDP? A) P₂; Y₂ B) P₃; Y₁ C) P₁; Y₂ D) P₂; Y₁

-Refer to Figure 9.1.Assume the economy is initially at point A.The eventual change from a shock that increases investment expenditure is best represented by which long-run equilibrium combination of price level and real GDP?

Quizplus · Accepted Answer

An increase in investment expenditure will shift the AD curve to the right, causing an expansion in both real GDP and price level. In the long-run, the economy will reach a new equilibrium at the intersection of the AD and LRAS curves. The new equilibrium will have a higher price level and an unspecified real GDP level. The only choice that shows a higher price level with the same (initial) real GDP as point A is P₂; Y₁. Therefore, the answer is D.

Figure 9.1 -Refer to Figure 9.1.Assume the Economy Is Initially at Point