3234EconomicsMedium
Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers allow the economy to adjust to the long run natural rate on its own,?
APeople will raise their price expectations and the short run aggregate supply will shift left
BPeople will raise their price expectations and aggregate demand will shift left
CPeople will reduce their price expectations and aggregate demand will shift right
DPeople will reduce their price expectations and the short run aggregate supply will shift right
Correct answer
D. People will reduce their price expectations and the short run aggregate supply will shift right
Explanation
The correct answer is People will reduce their price expectations and the short run aggregate supply will shift right.