Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?
A)Output will decrease.
B)Prices will increase.
C)Unemployment will rise.
D)Short-run aggregate supply will shift to the right.
E)Aggregate demand will shift to the right.

Question

Quizplus · Accepted Answer

When the economy is at a short-run equilibrium GDP below potential GDP, automatic mechanisms, such as lower input prices due to decreased demand, will cause the short-run aggregate supply (SRAS) to shift to the right. This adjustment helps the economy move back towards its potential GDP by increasing output without necessarily increasing the price level immediately.

Suppose the Economy Is at a Short-Run Equilibrium GDP That