Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point B, which of the following must

A) The Fed purchased treasury bills to cause the move.
B) Equilibrium GDP at point B must be below potential GDP.
C) The economy is producing a level of GDP equal to potential GDP.
D) Aggregate demand must have increased.
E) The Fed conducted expansionary policy to cause the move.

ANSWER:

B