Refer to the diagram. If the price level rises above $P _ { 1 }$ because of an increase in aggregate demand,
The
A) economy will move up along curve B and output will temporarily increase.
B) long-run aggregate supply curve C will shift upward.
C) short-run aggregate supply curve B will automatically shift to the right.
D) economy's output ?rst will decline, then increase, and ?nally return to $Q _ { 1 }$

Question

Refer to the diagram. If the price level rises above $P _ { 1 }$ because of an increase in aggregate demand,
The
A) economy will move up along curve B and output will temporarily increase. 
B) long-run aggregate supply curve C will shift upward. 
C) short-run aggregate supply curve B will automatically shift to the right. 
D) economy's output ?rst will decline, then increase, and ?nally return to $Q _ { 1 }$

Quizplus · Accepted Answer

If the price level rises above $P _ { 1 }$ because of an increase in aggregate demand, the economy will move up along curve B and output will temporarily increase. This is because at the higher price level, firms will increase their output to meet the increased demand, which in turn leads to an increase in employment and output in the short run. However, in the long run, the economy will eventually return to its original output level, as prices and wages adjust to the new level of aggregate demand. As a result, there will be no shift in the long-run aggregate supply curve or the short-run aggregate supply curve.

Refer to the Diagram P1P _ { 1 }P1​ Because of an Increase in Aggregate Demand, the A) Economy

Refer to the Diagram $P _ { 1 }$ Because of an Increase in Aggregate Demand,
the
A) Economy