Figure 33-3

-Given the situation in graph (1) in Figure 33-3, what can be expected to change in graph (1) when the economy's self-correcting mechanism operates?
A)Aggregate demand increases.
B)Aggregate demand decreases.
C)Aggregate supply increases.
D)Aggregate supply decreases.

Question

Figure 33-3
​ 
-Given the situation in graph (1) in Figure 33-3, what can be expected to change in graph (1) when the economy's self-correcting mechanism operates?
A)Aggregate demand increases. 
B)Aggregate demand decreases. 
C)Aggregate supply increases. 
D)Aggregate supply decreases.

Quizplus · Accepted Answer

When the economy's self-correcting mechanism operates, the economy moves from the initial equilibrium point (E) towards the long-run aggregate supply (LRAS) curve. This means that the economy is experiencing a decrease in aggregate supply, as the LRAS curve represents the potential output of the economy. Therefore, graph (1) would shift to the left, reflecting the decrease in aggregate supply.

Figure 33-3 ​

Figure 33-3