Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause: A) labor to adjust nominal wages sluggishly. B) the aggregate supply curve to remain at SRAS₁. C) the price level to eventually rise from 100 to 110. D) the price level to rise directly from 100 to 110 and GDP to remain constant at $6 trillion.

Question

Quizplus · Accepted Answer

The Answer of Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause: A) labor to adjust nominal wages sluggishly. B) the aggregate supply curve to remain at SRAS₁. C) the price level to eventually rise from 100 to 110. D) the price level to rise directly from 100 to 110 and GDP to remain constant at $6 trillion.

Exhibit 17-2 Aggregate Demand and Aggregate Supply Curves