FIGURE 24-1
-Refer to Figure 24-1. If the economy is currently producing output of Y0, the economyʹs automatic adjustment process will have the
A) AS curve shifting to the right until point A is reached.
B) vertical line at Y* shifting to the left until it gets to Y0.
C) AD curve shifting to the right until point B is reached.
D) economy remaining where it is.
E) level of potential output falling.

Question

FIGURE 24-1
-Refer to Figure 24-1. If the economy is currently producing output of Y0, the economyʹs automatic adjustment process will have the
A) AS curve shifting to the right until point A is reached. 
B) vertical line at Y* shifting to the left until it gets to Y0. 
C) AD curve shifting to the right until point B is reached. 
D) economy remaining where it is. 
E) level of potential output falling.

Quizplus · Accepted Answer

If the economy is currently producing output of Y0, there will be excess demand in the economy, which will cause prices to rise. This will shift the AS curve to the right until it reaches point A, where the economy is producing at potential output.

FIGURE 24-1 -Refer to Figure 24-1. If the Economy Is Currently Producing