Illustrate shifting the Aggregate demand and aggregate supply curve.
'An increase in aggregate supply causes a shift from SRAS1. To SRAS2 because this shift in the aggregate supply curve results in the lower price level, consumption investment, and net exports will increase. This change cause the aggregate demand curve to shift to the right from AD41 to AD2. We know that real GDP will increase, but we can't be sure whether the price level will rise or fall because that depends on wether the aggregate supply shifts out farther than aggregate demand, so I show the final price level, P3. As being lower than the initial price level, P3.'
Which of the following is a correct statement about the student's analysis?
1.The student is Incorrect, because the aggregate demand curve does not shift because the price level changes.
2.The student's analysis is correct.
3.The student is correct.
4.The student is incorrect, because the price level should rise when SRAS increases.