Exhibit 17-2 Aggregate Demand and Aggregate Supply Curves

question 15

Multiple Choice

Exhibit 17-2 Aggregate demand and aggregate supply curves

As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

• A) directly from 100 to 105 and then remain at 105.
• B) directly from 100 to 110 and then remain at 110.
• C) from 100 to 105 initially and then eventually move back to 100.
• D) from 100 to 105 initially and then eventually move to 110.

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