Use the following to answer question 7:
-(Figure: AD-AS Model) Refer to Figure: AD-AS Model. Suppose that the economy is at Y_E with a price level of P_1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD₁ to AD₂ as a result of an increase in the money supply?

Question

Use the following to answer question 7:

-(Figure: AD-AS Model) Refer to Figure: AD-AS Model. Suppose that the economy is at Y_E with a price level of P_1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD₁ to AD₂ as a result of an increase in the money supply?

Quizplus · Accepted Answer

In the long run, the economy returns to full employment output (Y_E), but at a higher price level (P₃) due to the rightward shift in aggregate demand.

Use the Following to Answer Question 7