Refer to the above graph.Assume the economy is at the initial position of B₁.An increase in aggregate demand will tend to: A)temporarily shift the economy to point B₂. B)temporarily shift the economy to point C₁. C)permanently shift the economy to point C₁. D)have no effect in shifting the economy from point B₁.

Question

Quizplus · Accepted Answer

An increase in aggregate demand will cause a temporary shift to a higher intersection point of the SRAS and AD curves. In this case, it will shift to point C₁, as it represents the new equilibrium level of output with higher prices. However, this shift is only temporary as the LRAS curve will eventually shift to the right, restoring the economy to its long-run equilibrium at point B₁.

Refer to the Above Graph