Use the figure below to answer the following question(s). Figure 10-5
Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5, which of the following is the most likely occurrence?

Question

Use the figure below to answer the following question(s). Figure 10-5
 Given the aggregate demand and aggregate supply conditions depicted in Figure 10-5, which of the following is the most likely occurrence?

Quizplus · Accepted Answer

The intersection of AD and SRAS (point A) is above the LRAS, indicating that the economy is producing above the potential output in the short run. To reach the long-run equilibrium, aggregate supply needs to shift to the right. A decrease in resource prices would reduce the costs of production and increase profit margins, incentivizing firms to increase output and shift the SRAS curve to the right, eventually reaching the LRAS and long-run equilibrium at point B with lower price level and higher output. None of the other options address this situation.

Use the Figure Below to Answer the Following Question(s)