-Refer to the Above Figure

question 114

Multiple Choice

-Refer to the above figure. Suppose the economy is in long-run equilibrium at point A, and the government initiates an expansionary monetary policy to increase aggregate demand. Which of the following is a true statement concerning the differences between what happens when the governmental action is unanticipated and when it is anticipated?

• A) The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point C.
• B) The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point A.
• C) The new long-run equilibrium will be point C in either case. When the increase in aggregate demand is unanticipated, the economy moves to B in the short run, but when the increase in aggregate demand is anticipated, short-run aggregate supply shifts when the aggregate demand curve shifts, and the economy moves immediately to point C.
• D) The new long-run equilibrium is point C in either case. When the increase in aggregate demand is unanticipated, the new short-run equilibrium is point B, but when the increase in aggregate demand is anticipated the new short-run equilibrium is point D.

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