Exhibit 17-2 Aggregate demand and aggregate supply curves
As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD1 to AD2 will cause the economy to move:
A. directly from E1 to E3 and then remain at E3.
B. directly from E1 to E2 and then remain at E2.
C. from E1 to E2 initially and then eventually move back to E1.
D. from E1 to E2 initially and then eventually move to E3.
Answer: A
Economics
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