Figure 12-1
-Refer to Figure 12-1. Assume that the economy is initially at Y₁. A nonintervention policy
Would result in the restoration of potential output by allowing the

Question

Figure 12-1 -Refer to Figure 12-1. Assume that the economy is initially at Y₁. A nonintervention policy Would result in the restoration of potential output by allowing the

Quizplus · Accepted Answer

A nonintervention policy would allow the economy to adjust naturally, and in this case, the economy would move along the short-run aggregate supply curve until it reaches potential output (Yp) at U1B1. Therefore, the short-run aggregate supply curve would shift to the right, as there would be an increase in productivity, leading to higher output levels. Neither the aggregate demand curve nor the short-run aggregate supply curve would shift to the left.

Figure 12-1 -Refer to Figure 12-1. Assume That the Economy Is Initially