Figure 11.2

-Refer to Figure 11.2...Assume the economy is in equilibrium at Ȳ₁,where real GDP equals potential GDP.The economy experiences a positive demand shock,and the Bank of Canada responds by increasing real interest rates to bring real GDP and inflation back to their original levels.Other things equal,the positive demand shock is best represented by am initial movement from

Question

Figure 11.2

-Refer to Figure 11.2...Assume the economy is in equilibrium at Ȳ₁,where real GDP equals potential GDP.The economy experiences a positive demand shock,and the Bank of Canada responds by increasing real interest rates to bring real GDP and inflation back to their original levels.Other things equal,the positive demand shock is best represented by am initial movement from

Quizplus · Accepted Answer

A positive demand shock would shift the aggregate demand curve to the right, from AD₁ to AD₂, causing an initial movement from point A to point B. The Bank of Canada responds by increasing real interest rates, which would shift the aggregate demand curve back to the left, from AD₂ to AD₁, ultimately bringing the economy back to its original equilibrium point at Ȳ₁. Therefore, the correct answer is B.

Figure 11.2 -Refer to Figure 11.2...Assume the Economy Is in Equilibrium at Is