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Exhibit 17-2 Aggregate Demand and Aggregate Supply Curves

Question 30

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Exhibit 17-2 Aggregate demand and aggregate supply curves
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 AD<sub>1</sub> to AD<sub>2</sub> will cause: A) labor to adjust nominal wages sluggishly. B) the aggregate supply curve to remain at SRAS<sub>1</sub>. C) the price level to eventually rise from 100 to 110. D) the price level to rise directly from 100 to 110 and GDP to remain constant at $6 trillion.
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:


A) labor to adjust nominal wages sluggishly.
B) the aggregate supply curve to remain at SRAS1.
C) the price level to eventually rise from 100 to 110.
D) the price level to rise directly from 100 to 110 and GDP to remain constant at $6 trillion.

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