Figure 27-1
-Refer to Figure 27-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from
A)D to C.
B)A to E.
C)C to D.
D)C to B.
E)E to A.

Question

Figure 27-1 
-Refer to Figure 27-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from
A)D to C. 
B)A to E. 
C)C to D. 
D)C to B. 
E)E to A.

Quizplus · Accepted Answer

Short-run equilibrium above potential GDP is indicated by a point to the right of the long-run aggregate supply curve. A movement from point C to point D represents an increase in aggregate demand and a shift of the AD curve to the right. If no policy is pursued, this movement would result in a higher price level and output level in the short run but would eventually lead to higher inflation rates and no change in real GDP in the long run.

Figure 27-1 -Refer to Figure 27-1.Suppose the Economy Is in Short-Run Equilibrium