(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives

Question 195
Multiple Choice

(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself: A) real interest rates will fall, which will shift SRAS rightward. B) lower wages will result in a gradual shift from SRAS1 to SRAS2. C) long-run equilibrium will be established at YP and P3. D) the aggregate demand curve will shift leftward.