Refer to the Graph Above

question 37

Multiple Choice

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an unanticipated decrease in aggregate demand to AD₂, then in the view of new classical economics the economy will:

• A) Self-correct through a shift in AS, which brings output back to Q₁
• B) Self-correct through a shift in AD, which brings output back to Q₁
• C) Need the government to implement expansionary policy in order to bring output back to Q₁
• D) Need the government to implement contractionary policy in order to bring output back to Q₁

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