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.
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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Explanation it correctly and details

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.
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you


Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON


Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON

Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON

Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning

Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education