Figure 27-1
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Question

Figure 27-1 
-Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

Quizplus · Accepted Answer

When the economy is above potential GDP, automatic stabilizers will reduce aggregate demand, shifting the AD curve leftward, moving the economy from a higher output level (C) back to potential GDP (B).

Figure 27-1 -Refer to Figure 27-1. Suppose the Economy Is in Short-Run