Final answer:
The movement of the economy to a new short-run equilibrium of P1 and Y3 suggests that aggregate demand has decreased, leading to a surplus of labor and unemployment in the short run. Over time, the decline in wages moves the short-run aggregate supply curve to the right, but in the long run, the economy returns to potential GDP, overriding the short-term effects. The correct answer is option: d. aggregate demand has decreased.
Step-by-step explanation:
Suppose the economy starts at Z and moves to a new short-run equilibrium of P1 and Y3; it indicates that aggregate demand has decreased. This decrease in aggregate demand can lead to a scenario where the short-run Keynesian aggregate supply curve shifts rightward.
However, this is a short-term effect. In the long run, neoclassical economists believe that flexible wages and prices will allow the economy to return to its potential GDP, and the vertical long-run aggregate supply curve will ultimately determine real GDP's size.
From a neoclassical perspective, the shift to the left in the aggregate demand curve leads to a surplus of labor and unemployment as output falls below potential GDP. Eventually, wages may stagnate or fall, which would cause the short-run aggregate supply curve to shift rightward due to the decreased cost of labor. However, this effect is not permanent and the economy adjusts back to potential GDP in the long run.