Consider the exhibit below for the following questions.

Refer to Figure 33-1. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from

Question

Consider the exhibit below for the following questions.

Refer to Figure 33-1. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from

BlackTom AI · Accepted Answer

The question asks about what happens if the economy, initially in long-run equilibrium, experiences an adverse shift in aggregate supply.

First, I note that the provided options are not visible in the prompt, but the given answer indicates the move is from C to D. With that in mind, I’ll explain the general reasoning behind why an adverse (leftward) shift in AS would move the economy along the diagram from point C toward point D.

An adverse AS shift reduces the economy's potential output at every price level (or, in macro graphs, it shifts the short-run aggregate supply curve leftward). In a standard AS–AD framework with a vertical long-run aggregate supply (LRAS), the immediate effect is a higher price level and a lower real GDP in the short run, moving the economy to a new short-run equilibrium closer to the original LRAS but at a higher price and lower output. On a diagram with labeled intersection points (A, B, C, D), points along the downward-sloping short-run supply intersections typically reflect different combinations of price level and real output as the curves shift.

Now, let’s examine why the path would be from C to D (according to the prompt).

- If C represents the initial short-run equilibrium after the AS shift and D represents a further movement along the new curve (or another equilibrium point on the shifted AS or AD curve), the move from C to D would reflect the economy adjusting to the higher price level and changed output in the short run. This is consistent with the standard response to an adverse AS shock: higher price level, lower output, and a new short-run equilibrium point.

Why the other potential interpretations could be incorrect (in a general sense, since specific options aren’t shown):
- A move from C to B or C to A might suggest movement toward higher output or lower price, which would not align with an adverse AS shift that reduces output and raises the price level in the short run. 
- A move along the same intersection (e.g., staying at C) would imply no adjustment, which contradicts the occurrence of an AS shock. 
- A move from B to A (or similar) would imply a recovery back toward the original equilibrium without accounting for the leftward shift in AS, which is inconsistent with an adverse supply shock until policy or other forces restore full equilibrium.

In sum, the expected conceptual pattern for an adverse AS shift is a re-equilibration resulting in a new short-run equilibrium with higher prices and lower output, which can be depicted as moving from C toward D on the diagram, depending on how those points are labeled relative to the shifted curves. If you can share the exact text of the other options, I can map each option precisely to this reasoning and highlight why C to D aligns with an adverse AS shift.

Consider the exhibit below for the following questions. Refer to Figure 33-1. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from

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