Figure 14.3 -Refer to Figure 14.3.Suppose the Economy Is Initially at Long-Run

Multiple Choice

Figure 14.3

-Refer to Figure 14.3.Suppose the economy is initially at long-run equilibrium and the economy experiences a demand shock such as a stock market crash.The economy then reaches a new,short-run equilibrium point.Assuming expectations are adaptive,this will allow the central bank to decrease the real interest rate,so the next movement is best represented as a movement from

A) point B to point D.
B) point D to point B.
C) point C to point D.
D) point D to point A.