FIGURE 27-4 Refer to Figure 27-4

FIGURE 27-4 Refer to Figure 27-4.The economy begins in equilibrium at E₀.Now consider an expansion of the money supply.What is the adjustment toward the new long-run equilibrium?

A) The AD curve shifts to AD₁.The inflationary gap causes prices to rise,AS shifts to AS₁ and equilibrium is restored at E₃.
B) The AD curve shifts to AD₁.The inflationary gap causes wages to rise,AS shifts to AS₁ and equilibrium is restored at E₂.
C) The AS curve shifts to AS₁ which causes the AD curve to shift to AD₁,resulting in a new equilibrium at E₂.
D) The AD curve shifts to AD₁.The increased money supply causes an increase in potential output and a new long-run equilibrium at E₁.
E) The AD and AS curves shift to AD₁ and AS₁ simultaneously.The increased price level pushes them back to AD₀ and AS₀ and equilibrium is restored at E₀.