Figure 7-7 -Refer to Figure 7-7. Suppose the Economy Is Initially at Is

Multiple Choice

Figure 7-7
-Refer to Figure 7-7. Suppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?

A) Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed.
B) Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS₁ closing the gap at H.
C) In response to rising prices, firms will increase production moving along SRAS₂ until long- run equilibrium is restored at J and the gap is closed.
D) Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS₂ until long-run equilibrium is restored at J and the gap is closed.