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 (b) of Exhibit 20A-1 is in short-run equilibrium where AD₁ equals SRAS₁. Keynesian theory argues:

A) nominal wages will fall as long as employment remains above the natural level of unemployment.
B) lower wages will result in a shift from SRAS₁ to SRAS₂.
C) long-run equilibrium will be established at Y_p and P₁.
D) government intervention must shift AD₁ rightward to AD₂.