Using Figure 1 above, if the aggregate demand curve shifts from AD1 to AD2 the result in the short run would be:

Policy makers cannot achieve both price stability and economic activity stability when facing

A) temporary supply shocks. B) permanent supply shocks. C) demand shocks. D) all of the above.

In the simple accelerator model, if expected output declines,

A) gross investment becomes negative. B) net investment becomes negative. C) both gross investment and net investment become negative. D) the desired stock of capital will become negative.