Use the following to answer questions . Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 -(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD₂. Which of the following is false about the economy after it adjusts to its new long-run equilibrium? A) Nominal wages increase. B) The price level rises to P_d. C) Firms employ more workers than in the short-run equilibrium. D) There is some frictional and structural unemployment.

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In the long-run equilibrium, the economy returns to full employment, so firms do not employ more workers than in the short-run equilibrium.

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