Exhibit 20A-1  Policy Alternatives Assume That the Economy Depicted in Panel

Multiple Choice

Exhibit 20A-1  Policy Alternatives Assume that the economy depicted in Panel (a) of Exhibit 20A-1 is in short-run equilibrium where AD equals SRAS₁. If the economy is left to correct itself according to classical theory:

A) wages will fall as long as real GDP is above Y_p.
B) lower wages will result in a shift from SRAS₁ to SRAS₂.
C) long-run equilibrium will be established at Y_p and P₃.
D) all of the above will take place.