PRICE LEVEL 98 106 102 立 B AD SRAS AD SRAS 94 40 44 48 52 56 QUANTITY OF OUTPUT (Trillions of dollars) Suppose an unanticipated decrease in foreign spending on domestically produced goods causes the aggregate demand curve to shift to the left (from ADI to AD2). According to adherents of the adaptive-expectations theory, the unanticipated change in aggregate demand will cause the economy to move in which direction? From point V to point L, before returning to point V From point V to point B and, eventually, from point B to point G Directly from point V to point G From point V to point B, before returning to point V Now suppose that the decrease in foreign spending on domestically produced goods was entirely anticipated by firms and workers. This means the public fully anticipates the leftward shift of the aggregate demand curve (from AD₁ to AD2). According to rational-expectations adherents, the anticipated change in aggregate demand will cause the economy to move in which direction? From point V to point L, before returning to point V O Directly from point V to point G From point V to point B and, eventually, from point B to point G O From point V to point B, before returning to point V 6. Differing views of self-correction Economists disagree about how quickly the economy adjusts to an aggregate demand shock. In the view of some economists, people form expectations based on present realities and change expectations gradually as their experience unfolds. Such expectations are said to be The following graph shows the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply (LRAS) curves for a hypothetical economy that is initially in equilibrium, operating at potential output at point V. PRICE LEVEL 110 LRAS 106 102 98 94 40 44 48 SRAS AD AD₂ 52 QUANTITY OF OUTPUT (Trillions of dollars) SRAS 56 (?) Suppose an unanticipated decrease in foreign spending on domestically produced goods causes the aggregate demand curve to shift to the left (from AD₁ to AD2). According to adherents of the adaptive-expectations theory, the unanticipated change in aggregate demand will cause the economy to move in which direction? From point V to point L, before returning to point V From point V to point B and, eventually, from point B to point G O Directly from point V to point G