-Refer to Exhibit 16-6.The economy is initially in long-run equilibrium at point A.There is a correctly anticipated increase in aggregate demand,prices and wages are flexible,the economy is self-regulating,and people hold rational expectations.The economy will move to point

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Given the conditions described, an anticipated increase in aggregate demand in a self-regulating economy with flexible prices and wages, and where people hold rational expectations, would lead to adjustments that could bring the economy to a new long-run equilibrium at either a higher price level and output (point B) or adjust through changes in wages and prices without a change in output (point C), depending on how the anticipation affects immediate supply and demand adjustments.