Figure 11.2 shows the relationship between the price level and real GDP.Suppose the economy is currently at e'.A leftward shift of the short-run aggregate supply curve would return the economy to potential output at:

A)point e''.
B)point
C)point e*.
D)a point higher than e''.

Question

Figure 11.2 shows the relationship between the price level and real GDP.Suppose the economy is currently at e'.A leftward shift of the short-run aggregate supply curve would return the economy to potential output at:

A)point e''. 
B)point 
C)point e*. 
D)a point higher than e''.

Quizplus · Accepted Answer

A leftward shift of the short-run aggregate supply curve indicates a decrease in potential output. Therefore, the economy would move leftward along the AD curve and return to potential output at point e'' where the AD curve intersects the LRAS curve.

Figure 112 Shows the Relationship Between the Price Level and Real