A: Refer to the figure below. Long-run equilibrium in this economy: 1: will be i

ID: 1123033 • Letter: A

Question

A: Refer to the figure below. Long-run equilibrium in this economy:

1: will be impossible to achieve.

2: could occur if AD shifts downward to the left.

3: could occur if AS shifts downward and to the right.

4: will occur only if AD shifts upward to the right.

B: A demand shock is a change in planned spending that is:

1: caused by changes in output.

2: caused by changes in the inflation rate.

3: caused by changes in output and changes in the real interest rate.

4: not caused by changes in output or changes in the inflation rate.

Inflation rate AD Output

A> 3: could occur if AS shifts downward and to the right.

Reason

If AS curve shifts to the right, the long run equilibrium can be achieved.

B> 4: not caused by changes in output or changes in the inflation rate.

Reason

Since this is a demand shock, it must not occur as a result of a change in output or the inflation rate.

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