FIGURE 23-1 -Refer to Figure 23-1.Assume the Economy Is Initially in Equilibrium

Multiple Choice

FIGURE 23-1

-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose there is an exogenous rise in the price level to P1.Which of the following statements describes the likely macroeconomic effects?

A) The AE curve shifts to AE1,a new equilibrium is established at point U,and the AD curve shifts from AD0 to AD1,and equilibrium from point B to point D.
B) The AE curve shifts to AE2,a new equilibrium is established at point W,and the economy moves from point B to point C along AD0.
C) The AE curve shifts to AE1,a new equilibrium is established at point U,and the economy moves from point B to point A along AD0.
D) The AE curve shifts to AE2,a new equilibrium is established at point W,and the AD curve shifts from AD0 to AD1,and equilibrium moves from point B to point D.