The figure below shows equilibrium in an aggregate demand-aggregate supply model.In this figure,the shift from AS to AS' is likely to occur when:
Figure 10.3

A)the actual price level is higher than expected.
B)the actual price level is lower than expected.
C)the unemployment rate is lower than the natural rate.
D)the actual output is more than the potential output.
E)the aggregate demand curve intersects the short-run aggregate supply curve at the potential output.

Question

The figure below shows equilibrium in an aggregate demand-aggregate supply model.In this figure,the shift from AS to AS' is likely to occur when:​ ​
Figure 10.3

A)the actual price level is higher than expected. 
B)the actual price level is lower than expected. 
C)the unemployment rate is lower than the natural rate. 
D)the actual output is more than the potential output. 
E)the aggregate demand curve intersects the short-run aggregate supply curve at the potential output.

Quizplus · Accepted Answer

The shift from AS to AS' indicates a decrease in aggregate supply. This can occur when the actual price level is lower than expected, causing firms to reduce their output and supply. The shift cannot be caused by choices A and C, as they are related to changes in the aggregate demand curve. Choice D is incorrect because an increase in actual output beyond potential output would lead to inflationary pressures and a shift in the short-run aggregate supply curve in the opposite direction. Choice E describes the point of potential output and intersection of AD and SRAS curves, but does not explain the shift in the AS curve itself.

The Figure Below Shows Equilibrium in an Aggregate Demand-Aggregate Supply