ADI I REAL GDP According to Figure 11.2, a shift from ADi to AD2 will A. Move eq

Question

ADI I REAL GDP According to Figure 11.2, a shift from ADi to AD2 will A. Move equilibrium to QF B. Eliminate the GDP gap because of the increase in output. C. Move equilibrium to point Y because of an increase in the price level. D. Move the economy to point Y and then the market mechanism will move the econom to point Z 5) Ceteris paribus, if income a high MPC, was transferred from individuals with a low MPC to thos transf wi aggregate demand would A. Increase. B. Decrease. CStay the same. D. Increase or decrease, but not because of the M 3

Explanation / Answer

Question 1

If aggregate demand curve shift from AD1 to AD2 then equilibrium will move from point X to point Y where new aggregate demand curve is intersecting the aggregate supply curve.

This will result in higher price level which in turn will lead to higher wages in economy and would ultimately shift the aggregate supply curve downwards and eventually economy will move to point Z, the full employment equilibrium.

The correct answer is the option (D).

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