-In the above figure, if people correctly anticipate the increases in aggregate demand and the resulting inflation, the path will be from
A) point A to B to D to F to G.
B) point A to B to D to E to G.
C) point A to D to G.
D) point A to C to D to F to G.

Question

-In the above figure, if people correctly anticipate the increases in aggregate demand and the resulting inflation, the path will be from
A) point A to B to D to F to G. 
B) point A to B to D to E to G. 
C) point A to D to G. 
D) point A to C to D to F to G.

Quizplus · Accepted Answer

If people correctly anticipate increases in aggregate demand and the resulting inflation, the economy will move directly from the initial equilibrium (point A) to the new long-run equilibrium (point G) without short-run deviations, as expectations adjust immediately.

-In the Above Figure, If People Correctly Anticipate the Increases