The figure given below depicts long run equilibrium in an aggregate demand-aggregate supply model.Which of these could have caused the movement shown in this figure?
Figure 10.8

A)A decrease in the size of the labor force
B)An increase in the price level
C)An increase in net investment
D)An increase in autonomous consumption
E)A decrease in autonomous consumption

Question

The figure given below depicts long run equilibrium in an aggregate demand-aggregate supply model.Which of these could have caused the movement shown in this figure?​ ​
Figure 10.8

A)A decrease in the size of the labor force 
B)An increase in the price level​ 
C)An increase in net investment​ 
D)An increase in autonomous consumption​ 
E)A decrease in autonomous consumption​

Quizplus · Accepted Answer

The increase in net investment would cause the aggregate demand curve to shift to the right, leading to an increase in output and price level in the long run equilibrium as depicted in the figure. A decrease in the size of the labor force (A) would lead to a leftward shift in the aggregate supply curve resulting in a decrease in both output and price level. An increase in price level (B) would not cause a shift in the aggregate demand or supply curves but would only move the economy along the existing curves. An increase in autonomous consumption (D) would shift the aggregate demand curve to the right, but in the long run, the economy would reach a new equilibrium with a higher price level, but the same level of output. Similarly, a decrease in autonomous consumption (E) would result in a leftward shift of the aggregate demand curve leading to lower output, and price level in the long run equilibrium.

The Figure Given Below Depicts Long Run Equilibrium in an Aggregate