Figure C Figure D P level 60 P level 60 ASo LRAS LRAS 50 50 ASo 40 40 - 30 30 20 20 AD1 10 10 CADO ADo AD1H 20 30 40 50 10 20 30 40 50 real GDP = Q real GDP = Q %3D 30. Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, which of the following explains the adjustment towards long-run equilibrium depicted in Figure A? Unemployment (resulting from the short-run equilibrium being below LRAS) causes wages to decline, which increases AS till long-run equilibrium is attained at full employment level of income and a lower price level. Government spending is increased, increasing AD to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level. In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the AS to decrease to the point where long-run equilibrium is restored. O Taxes are increased reducing AD to a level consistent with long-run equilibrium. 10

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