For the following questions,use the diagram below: Figure 34-7. -Refer to Figure 34-7.Which of the following is correct? A)A wave of optimism could move the economy from point a to point b. B)If aggregate demand moves from AD₁ to AD₂,the economy will stay at point b in both the short run and long run. C)It is possible that either fiscal or monetary policy might have caused the shift from AD₁ to AD₂. D)All of the above are correct.

Question

Quizplus · Accepted Answer

We can see from the figure that moving from AD₁ to AD₂ results in a shift from point a to point b, which means that Option A is incorrect. Option B is also incorrect because in the long run, the economy will move from point b to its potential GDP trajectory. Therefore, only Option C is correct, as both fiscal and monetary policy can influence aggregate demand and cause a shift from AD₁ to AD₂.

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