An economy attained a long-run equilibrium at point A. How does the price adjust in the long run when the aggregate demand rises from AD1 to AD2 to bring the economy back to its natural rate? O The output increases, and the price gradually reaches point A from its value at point C.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Use the graph to answer the question that follows.
Price
Level
P
LRAS
Al
Y
BAD2 SRAS
AD1
Income
An economy attained a long-run equilibrium at point A. How does the price adjust in the long run
when the aggregate demand rises from AD1 to AD2 to bring the economy back to its natural rate?
O The output increases, and the price gradually reaches point A from its value at point
The price decreases and gradually reaches the long-run equilibrium at point A.
O The price does not adjust. In the long-run, the output adjusts and reaches the equilibrium point.
O The price increases and gradually decreases the output. That returns the economy to its natural rate from
point C to A.
The price increases, and the output gradually returns to its natural rate from point B to C.
Transcribed Image Text:Use the graph to answer the question that follows. Price Level P LRAS Al Y BAD2 SRAS AD1 Income An economy attained a long-run equilibrium at point A. How does the price adjust in the long run when the aggregate demand rises from AD1 to AD2 to bring the economy back to its natural rate? O The output increases, and the price gradually reaches point A from its value at point The price decreases and gradually reaches the long-run equilibrium at point A. O The price does not adjust. In the long-run, the output adjusts and reaches the equilibrium point. O The price increases and gradually decreases the output. That returns the economy to its natural rate from point C to A. The price increases, and the output gradually returns to its natural rate from point B to C.
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