Refer to the Graph

Multiple Choice

Refer to the graph. Assume that the economy was initially in equilibrium at point A. If there is a significant technological innovation in the economy, then according to real-business-cycle theory,
Aggregate

A) demand will shift, which constitutes the full extent of the volatility.
B) demand will shift, which causes a corresponding shift in aggregate supply.
C) supply will shift, which causes a corresponding shift in aggregate demand.
D) supply will shift, but such shifts are very rare in the real economy.