DSE SP-24

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 an economy.

In the above diagram, point E is the initial equilibrium point. Which of the following are correct in the long run?

(1) If AD₁ shifts to AD₂, SRAS₁ will shift to SRAS₂.

(2) If AD₁ shifts to AD₂, AD₂ will shift back to AD₁.

(3) If SRAS₁ shifts to SRAS₂, AD₁ will shift to AD₂.

(4) If SRAS₁ shifts to SRAS₂, SRAS₂ will shift back to SRAS₁.

A. (1) and (3) only

B. (1) and (4) only

C. (2) and (3) only

D. (2) and (4) only