Figure 16-6 -Refer to Figure 16-6. Suppose the Economy Was Operating at Was

Multiple Choice

Figure 16-6
-Refer to Figure 16-6. Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. What happens when workers and firms adjust their expectations in a higher price level and act on these expectations?

A) The aggregate demand curve shifts to the left until it intersects the long-run aggregate supply (LRAS) curve.
B) The short-run aggregate supply (SRAS) curve shifts to the right.
C) The SRAS curve shifts to the left.
D) Both the LRAS and the SRAS curves shift to the right.