Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 2) Suppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium? A) Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. B) Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS₁ closing the gap at H. C) In response to rising prices, firms will increase production moving along SRAS₂ until long- run equilibrium is restored at J and the gap is closed. D) Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS₂ until long-run equilibrium is restored at J and the gap is closed.

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Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H.

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