Figure 17-3
-Refer to Figure 17-3. Starting from c and 3, where does a decrease in aggregate demand move the economy to, in the short run and the long run?
A) a and 1 in the short run, b and 2 in the long run
B) b and 2 in the short run, a and 1 in the long run
C) d and 4 in the short run, e and 5 in the long run
D) b and 4 in the short run, e and 1 in the long run

Question

Figure 17-3 
-Refer to Figure 17-3. Starting from c and 3, where does a decrease in aggregate demand move the economy to, in the short run and the long run?
A) a and 1 in the short run, b and 2 in the long run 
B) b and 2 in the short run, a and 1 in the long run 
C) d and 4 in the short run, e and 5 in the long run 
D) b and 4 in the short run, e and 1 in the long run

Quizplus · Accepted Answer

A decrease in aggregate demand would shift the AD curve to the left, leading to a lower level of real GDP and a lower price level in the short run. This would move the economy from point c and 3 to point b and 2. In the long run, wages and prices are flexible, so they adjust to the lower level of output and return the economy to its potential GDP. This would move the economy from point b and 2 to point a and 1.

Figure 17-3 -Refer to Figure 17-3. Starting from C and 3, Where