Exhibit 14A-6 Aggregate demand and supply model

-Beginning from a point of short-run equilibrium at point E₂ in Exhibit 14A-6,the economy's movement to a new position of long-run equilibrium from that point would best be described as:
A) a movement along the AD₂ curve caused by a shift in the SRAS₁ curve to SRAS₂.
B) a movement along the SRAS₂ curve with a shift in the AD₂ curve.
C) a shift in the LRAS curve to an intersection at E₃.
D) no shift of any kind.

Question

Exhibit 14A-6 Aggregate demand and supply model
 
-Beginning from a point of short-run equilibrium at point E₂ in Exhibit 14A-6,the economy's movement to a new position of long-run equilibrium from that point would best be described as:
A) a movement along the AD₂ curve caused by a shift in the SRAS₁ curve to SRAS₂. 
B) a movement along the SRAS₂ curve with a shift in the AD₂ curve. 
C) a shift in the LRAS curve to an intersection at E₃. 
D) no shift of any kind.

Quizplus · Accepted Answer

In the short run, the economy can be at a point where aggregate demand (AD) and short-run aggregate supply (SRAS) intersect, but not necessarily at long-run equilibrium. To reach long-run equilibrium, the SRAS curve typically shifts to reflect changes in resource prices or expectations, moving the economy along the AD curve to a new intersection with the long-run aggregate supply (LRAS) curve.

Exhibit 14A-6 Aggregate Demand and Supply Model