-Refer to Exhibit 16-6.The economy is initially at point B.There is an unanticipated increase in aggregate demand,prices and wages are flexible,the economy is self-regulating,and people hold adaptive expectations.In the short run the economy will move to point __________ and in the long run the economy will be at point __________.

Question

Quizplus · Accepted Answer

In the short run, an unanticipated increase in aggregate demand with flexible prices and wages will lead to an increase in both output and the price level, moving the economy to point E. In the long run, with adaptive expectations, the economy self-regulates back to its natural level of output, but at a higher price level, which corresponds to point C.