Refer to the Graph Above

question 111

Multiple Choice

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an anticipated decrease in aggregate demand to AD₂, then according to rational expectations theory, the path for adjustment runs from point:

• A) A to B to C
• B) A to D to C
• C) A directly to C
• D) A directly to D

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