Exhibit 17-2 Aggregate Demand and Aggregate Supply Curves

question 51

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 economy to move:

• A) directly from E₁ to E₃ and then remain at E₃.
• B) directly from E₁ to E₂ and then remain at E₂.
• C) from E₁ to E₂ initially and then eventually move back to E₁.
• D) from E₁ to E₂ initially and then eventually move to E₃.

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Definitions:

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