DSE 12-26

The diagram below shows the aggregate demand (AD) curves, the short run aggregate supply (SRAS) curves and the long run aggregate supply (LRAS) curve of a country. Point E is the initial equilibrium point.

When there is an economic recovery in the country’s major trading partner, __________ in the short run and __________ in the long run.

A. AD₁ will shift to AD₂ … SRAS₁ will shift to SRAS₂

B. AD₁ will shift to AD₂ …AD₂ will shift back to AD₁

C. SRAS₁ will shift to SRAS₂ …AD₁ will shift to AD₂

D. SRAS₁ will shift to SRAS₂ … SRAS₂ will shift to SRAS₁