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(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.

Related questions
Q 196
(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium at a real GDP level of Y1. The economy will correct itself: A) rapidly, without use of fiscal policy. B) in the long run as wages fall. C) in the short run as wages rise. D) because the aggregate demand curve shifts.
Q 197
(Figure: Policy Alternatives) Refer to Figure: Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is: A) an inflationary gap. B) a recessionary gap. C) no gap. D) long-run equilibrium.
Q 198
Inflationary and recessionary gaps are closed by self-correcting adjustments that shift: A) the SRAS curve. B) the AD curve. C) the LRAS curve. D) both the SRAS curve and the LRAS curve.
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