If a Demand Shock Causes an Economy to Operate at a Point

question 34

Multiple Choice

If a demand shock causes an economy to operate at a point above potential GDP,then

• A) the aggregate supply curve will shift to return the economy to the original point of equilibrium
• B) the economy will correct itself through rising wages and prices
• C) this short-run equilibrium point will become the new long-run equilibrium GDP
• D) the economy will correct itself through falling wage rates and prices
• E) the shock is said to be a negative demand shock

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