Exhibit 10.4

-Refer to Exhibit 10.4, which shows an aggregate demand-aggregate supply model. Which of the following will be true of an economy in the long run that is at point M in the short run?
A) The actual price level will be lower than the expected price level.
B) The actual output will fall short of the potential output.
C) The short-run aggregate supply curve will remain stable at SRAS₁₀₀.
D) The short-run aggregate supply curve will shift to SRAS₁₀₉.
E) Real GDP will be equal to nominal GDP.

Question

Exhibit 10.4
 
-Refer to Exhibit 10.4, which shows an aggregate demand-aggregate supply model. Which of the following will be true of an economy in the long run that is at point M in the short run?
A) The actual price level will be lower than the expected price level. 
B) The actual output will fall short of the potential output. 
C) The short-run aggregate supply curve will remain stable at SRAS₁₀₀. 
D) The short-run aggregate supply curve will shift to SRAS₁₀₉. 
E) Real GDP will be equal to nominal GDP.

Quizplus · Accepted Answer

In the long run, if the economy is at point M in the short run, the short-run aggregate supply curve will shift to the right (to SRAS₁₀₉) to restore equilibrium at the potential output level, assuming point M represents an output level above potential output.

Exhibit 10.4 -Refer to Exhibit 10.4, Which Shows an Aggregate Demand-Aggregate Supply