Use the Following to Answer Questions

question 103

Multiple Choice

Use the following to answer questions .
Exhibit: Aggregate Demand Shifts and Expectations
-(Exhibit: Aggregate Demand Shifts and Expectations) Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. What happens when workers and firms adjust their expectations in a higher price level and act on these expectations?

• A) The aggregate demand curve shifts to the left until it intersects the long-run aggregate supply (LRA
• S) curve.
• B) The short-run aggregate supply (SRA
• S) curve shifts to the right.
• C) The SRAS curve shifts to the left.
• D) Both the LRAS and the SRAS curves shift to the right.

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