Figure 1

-Refer to the Figure above.Suppose the economy is operating in a recession such as point B.If policymakers allow the economy to adjust to the long run natural rate on its own, people will
A)reduce their price expectations and the short run aggregate supply will shift to the right.
B)raise their price expectations and aggregate demand will shift to the left.
C)raise their price expectations and the short run aggregate supply will shift to the left.
D)reduce their price expectations and aggregate demand will shift to the right.

Question

Figure 1
 
-Refer to the Figure above.Suppose the economy is operating in a recession such as point B.If policymakers allow the economy to adjust to the long run natural rate on its own, people will
A)reduce their price expectations and the short run aggregate supply will shift to the right. 
B)raise their price expectations and aggregate demand will shift to the left. 
C)raise their price expectations and the short run aggregate supply will shift to the left. 
D)reduce their price expectations and aggregate demand will shift to the right.

Quizplus · Accepted Answer

In a recession, people will reduce their price expectations, leading to a rightward shift in the short-run aggregate supply as wages and input costs decrease, moving the economy back to its natural rate.

Figure 1 -Refer to the Figure Above.Suppose the Economy Is Operating in Economy