Need help with this. Thanks! Economists disagree about how quickly the economy adjusts to an aggregate demand shock. In the view of some economists, people form expectationsbased on present realities and change expectations gradually as their experience unfolds. Such expectations are said to beadaptive/ rational/ unexpected/ great/ reasonableThe following graph shows the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply (LRAS) curves for ahypothetical economy that is initially in equilibrium, operating at potential output at point N.PRICE LEVEL11010629440LRASSRASMDSRASAD₁AD₂444852QUANTITY OF OUTPUT (Trillions of dollars)56(?) Suppose an unanticipated increase in investment spending causes the aggregate demand curve to shift to the right (from AD1₁ to AD₂). According toadherents of the adaptive-expectations theory, the unanticipated change in aggregate demand will cause the economy to move in which direction?O From point N to point K, before returning to point NO From point N to point D and, eventually, from point D to point ZO Directly from point N to point ZO From point N to point D, before returning to point NNow suppose that the increase in investment spending was entirely anticipated by firms and workers. This means the public fully anticipates the rightwardshift of the aggregate demand curve (from AD₁ to AD₂). According to rational-expectations adherents, the anticipated change in aggregate demand willcause the economy to move in which direction?O From point N to point K, before returning to point NDirectly from point N to point ZO From point N to point D, before returning to point NO From point N to point D and, eventually, from point D to point Z

Aggregate demand is the total quantity of output firms will produce and sell at the end of the day,…

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 adaptive/ rational/ unexpected/ great/ reasonable 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 N. PRICE LEVEL 110 106 98 94 40 LRAS SN SRAS SRAS AD₁ AD₂ 44 48 52 QUANTITY OF OUTPUT (Trillions of dollars) 56 ?

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 adaptive/ rational/ unexpected/ great/ reasonable 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 N. PRICE LEVEL 110 106 98 94 40 LRAS SN SRAS SRAS AD₁ AD₂ 44 48 52 QUANTITY OF OUTPUT (Trillions of dollars) 56 ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Need help with this. Thanks!

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
adaptive/ rational/ unexpected/ great/ reasonable
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 N.
PRICE LEVEL
110
106
2
94
40
LRAS
SRAS
M
D
SRAS
AD₁
AD₂
44
48
52
QUANTITY OF OUTPUT (Trillions of dollars)
56
(?)

Suppose an unanticipated increase in investment spending causes the aggregate demand curve to shift to the right (from AD1₁ 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?
O From point N to point K, before returning to point N
O From point N to point D and, eventually, from point D to point Z
O Directly from point N to point Z
O From point N to point D, before returning to point N
Now suppose that the increase in investment spending was entirely anticipated by firms and workers. This means the public fully anticipates the rightward
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?
O From point N to point K, before returning to point N
Directly from point N to point Z
O From point N to point D, before returning to point N
O From point N to point D and, eventually, from point D to point Z

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