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,moving the economy to another new equilibrium point.The stock market crash is temporary,so the next movement on the path to the long-run equilibrium will be from

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