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In this exhibit (Figure 7-7), suppose the economy is initially in short-run equilibrium at point K. If the policy-makers adopt a nonintervention policy, over time,

I. Real wages will fall as long as unemployment remains above the natural rate.

II. Lower nominal wages will result in a gradual shift from SRAS₂to SRAS₁.

III. Long-run equilibrium will be established at Y_Pand P_h.

Select one:

a.I, II, and III

b.I and II only

c.II and III only

d.III only