Incorrect Question 4 0/ 1 pts If the economy experiences simultaneous negative a
ID: 1153698 • Letter: I
Question
Incorrect Question 4 0/ 1 pts If the economy experiences simultaneous negative aggregate demand and aggregate supply shocks, and the Fed decides NOT to intervene with expansionary policy. Short run aggregate supply will eventually shift back to the right, which will eventually bring the economy back to the original equilibrium price at a lower level of aggregate output back to potential GDP at a higher price level. back to the original equilibrium price at a higher level of aggregate output. back to potential GDP at a lower price level.Explanation / Answer
d. back to potential GDP at a lower price level.
(Initially due to negative shock, aggregate demand curve will shift downward to the left and aggregate supply curve will shift upward to the left. So, equilibrium is attained at original equilbrium price at a lower level of aggregate output. However overtime, short run aggregate supply curve shifts back to its original position so equilibrium will be attained at potential GDP but at a lower price level because of decline in aggregate demand).