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Refer to the Graph Above

Question 4

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Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD<sub>1</sub> and AS<sub>1</sub>. Suppose that there is economic growth which shifts AS<sub>1</sub> to AS<sub>2</sub>. Because of the shift from AS<sub>1</sub> to AS<sub>2</sub>, a monetarist following a monetary rule would call for an increase in aggregate demand such that the price level and quantity of real domestic output would be: A) P<sub>4</sub> and Q<sub>2</sub> B) P<sub>3</sub> and Q<sub>2</sub> C) P<sub>2</sub> and Q<sub>2</sub> D) P<sub>1</sub> and Q<sub>2</sub> Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. Suppose that there is economic growth which shifts AS1 to AS2. Because of the shift from AS1 to AS2, a monetarist following a monetary rule would call for an increase in aggregate demand such that the price level and quantity of real domestic output would be:


A) P4 and Q2
B) P3 and Q2
C) P2 and Q2
D) P1 and Q2

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