Beginning from short-run equilibrium at point E₂ in Exhibit 14A-1,the economy's movement to a new position of long-run equilibrium would best be described as:
A) a movement along the AD₂ curve with a shift in the SRAS₁ curve.
B) a movement along the SRAS₂ curve with a shift in the AD₂ curve.
C) a shift in the LRAS curve to an intersection at E₁.
D) no shift of any kind.

Question

Quizplus · Accepted Answer

In the short run, the economy can be at a point where aggregate demand (AD) and short-run aggregate supply (SRAS) intersect, but not necessarily at long-run equilibrium. To reach long-run equilibrium, the SRAS curve typically shifts to intersect with the AD curve at the long-run aggregate supply (LRAS) level, indicating full employment and potential output.

Beginning from Short-Run Equilibrium at Point E₂ in Exhibit 14A-1,the