-Refer to the above graph. Assume that the economy is initially at equilibrium at point A. If there is a recession in the economy such that AD₁ shifts to AD₂, and wages and prices are flexible, then in the long run the price level will be: A) P₂, and real output will be Q_f. B) P₃, and real output will be Q_f. C) P₁, and real output will be Q_f. D) P₂, and real output will be Q₁.

Question

Quizplus · Accepted Answer

In the long run, with flexible wages and prices, the economy will return to equilibrium at point F, where the price level is P2 and real output is Qf.

-Refer to the Above Graph