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14. Consider starting from full-employment equilibrium in our Aggregate Demand and Supply model (with flexible wages and worker misperception of price level changes in the short run), at Po. ON on the output market graph below. Then we get an increase in Aggregate Demand from Agg Do to Agg D1. P LR Agg S P 1 Po Agg D Agg D 2 21 We can say that a. In the long run, P and Q will return to original levels when workers perceive the decrease in P. b. at P1, 21, we are in a recessionary gap. c. P will increase further as employment cools down, and Q will decrease back to ON. d. Q will increase above 21 as employment increases (due to workers taking lower wages). e. none of the above. 105