The figure below shows equilibrium in an aggregate demand-aggregate supply model. In this figure, the shift from AS to AS' is likely to occur when:

A) the actual price level is higher than expected.
B) the actual price level is lower than expected.
C) the unemployment rate is lower than the natural rate.
D) the actual output is more than the potential output.
E) the aggregate demand curve intersects the short-run aggregate supply curve at the potential output.

Question

The figure below shows equilibrium in an aggregate demand-aggregate supply model. In this figure, the shift from AS to AS' is likely to occur when:

A) the actual price level is higher than expected. 
B) the actual price level is lower than expected. 
C) the unemployment rate is lower than the natural rate. 
D) the actual output is more than the potential output. 
E) the aggregate demand curve intersects the short-run aggregate supply curve at the potential output.

Quizplus · Accepted Answer

The shift from AS to AS' can occur when the actual price level is lower than expected, leading to a decrease in production costs and an increase in aggregate supply. This shift will result in a lower equilibrium price level and higher equilibrium output level.

The Figure Below Shows Equilibrium in an Aggregate Demand-Aggregate Supply