Figure 7-3 -Refer to Figure 7-3. Suppose That the Economy Is in Economy

Multiple Choice

Figure 7-3
-Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the long-run, all other things unchanged?

A) The economy will return to its initial equilibrium at point A.
B) Equilibrium will be re-established at point B with a higher potential output.
C) Equilibrium will be re-established at point E at a higher price level.
D) The aggregate demand curve will shift back to AD₁.