Exhibit 17-2 Aggregate Demand and Aggregate Supply Curves

Multiple Choice

Exhibit 17-2 Aggregate demand and aggregate supply curves

As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

A) directly from 100 to 105 and then remain at 105.
B) directly from 100 to 110 and then remain at 110.
C) from 100 to 105 initially and then eventually move back to 100.
D) from 100 to 105 initially and then eventually move to 110.