The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A. FIGURE 24-4 Refer to Figure 24-4.The positive aggregate supply shock shown in the diagram results in a new short-run equilibrium where the price level is ________ and real GDP is ________.
A)60; 1000
B)60; 1300
C)90; 750
D)90; 1200
E)110; 1300

Question

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A.  FIGURE 24-4 Refer to Figure 24-4.The positive aggregate supply shock shown in the diagram results in a new short-run equilibrium where the price level is ________ and real GDP is ________.
A)60; 1000 
B)60; 1300 
C)90; 750 
D)90; 1200 
E)110; 1300

Quizplus · Accepted Answer

A positive aggregate supply shock will shift the AS curve to the right. As a result, the equilibrium GDP will increase and the price level will decrease in the short-run. The new short-run equilibrium is where the AS and AD curves intersect. In the diagram, the new short-run equilibrium is at point B where the price level is 90 and real GDP is 1200. Therefore, the correct answer is D.

The Diagram Below Shows an AD/AS Model for a Hypothetical