For the following questions, use the diagram below: Figure 21-7. -Refer to Figure 21-7. Which of the following is correct? A)A wave of optimism could move the economy from point a to pointB B)If aggregate demand moves from AD₁ to AD₂, the economy will stay at point b in both the short run and long run. C)It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂. D)All of the above are correct.

Question

Quizplus · Accepted Answer

We can see that there has been a shift in aggregate demand from AD₁ to AD₂, but we cannot determine the cause of this shift just from the diagram. It could be due to either fiscal or monetary policy, so option C is correct. A is incorrect because there is no evidence of a wave of optimism in the diagram. B is incorrect because a shift in aggregate demand would actually move the economy from point b to point c in the short run, and eventually to point A in the long run.

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