Figure 21-7. -Refer to Figure 21-7.Which of the following is correct? A) A wave of optimism could move the economy from point a to point b B) If aggregate demand moves from AD₁ to AD₂,the economy will stay at point b in both the short run and long run. C) It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂. D) All of the above are correct.

Question

Quizplus · Accepted Answer

Option A is incorrect because a wave of optimism may shift the SRAS to the right and increase output, but it will not move the economy from point a to point b. Option B is incorrect because a shift in aggregate demand from AD₁ to AD₂ will lead to an increase in output and price level, causing the economy to move from point a to point b in the short run, but in the long run, the economy will return to its potential output and the natural rate of unemployment, which is represented by point a. Option C is correct because fiscal or monetary policy could have caused the shift in aggregate demand from AD₁ to AD₂.

Figure 21-7. -Refer to Figure 21-7.Which of the Following Is Correct