Figure 10-4

-In Figure 10-4, if full employment occurs at 5,000 and the price level is currently 130, then we can expect the
A)aggregate supply curve to shift to the left until a new equilibrium is established at an output level of 4,000.
B)aggregate demand curve to shift to the right until a new equilibrium is established at an output level of 6,000.
C)price level to fall to 110.
D)aggregate demand to shift to the left and aggregate supply to shift to the right until the price level reaches 130.

Question

Figure 10-4
​ 
-In Figure 10-4, if full employment occurs at 5,000 and the price level is currently 130, then we can expect the
A)aggregate supply curve to shift to the left until a new equilibrium is established at an output level of 4,000. 
B)aggregate demand curve to shift to the right until a new equilibrium is established at an output level of 6,000. 
C)price level to fall to 110. 
D)aggregate demand to shift to the left and aggregate supply to shift to the right until the price level reaches 130.

Quizplus · Accepted Answer

If full employment occurs at 5,000 and the price level is currently 130, it suggests that the economy might be experiencing inflationary pressure. The expectation would be for the price level to adjust (decrease) to stabilize the economy, not for shifts in aggregate supply or demand to further move away from the full employment level.

Figure 10-4 ​

Figure 10-4