Figure 17-3

-Given the situation in graph (1) in Figure 17-3, what can be expected to change in graph (1) when the economy's self-correcting mechanism operates?

Question

Figure 17-3
 
-Given the situation in graph (1) in Figure 17-3, what can be expected to change in graph (1) when the economy's self-correcting mechanism operates?

Quizplus · Accepted Answer

When the self-correcting mechanism operates, the economy moves towards its long-run equilibrium point where aggregate demand and aggregate supply intersect at the potential GDP level. This means the aggregate supply curve shifts to the right, leading to a decrease in the price level and an increase in real GDP. Therefore, the correct choice is D - aggregate supply decreases as it shifts to the right.

Figure 17-3 -Given the Situation in Graph (1) in Figure 17-3, What