The diagram shows the macroeconomic impact of a supply-side policy that shifts the aggregate supply curve of an economy from AS1 AS_1\,AS1 to AS2AS_2AS2, thereby increasing potential full-capacity output from Yf1Y_{f1}Yf1 to Yf2Y_{f2}Yf2.
Which of the following statements is correct regarding the effectiveness of this supply-side policy?
At ADHighAD_{\text{High}}ADHigh, the policy is least effective because the economy suffers from severe demand-pull inflation as equilibrium moves from E1E_1E1 to E2E_2E2.
At ADLowAD_{\text{Low}}ADLow, the policy is highly effective because the increase in potential capacity immediately stimulates export demand by lowering domestic price levels.
At ADLowAD_{\text{Low}}ADLow, the policy is least effective in the short run because the equilibrium level of actual real output remains unchanged due to a deficiency in aggregate demand.
The shift from AS1AS_1AS1 to AS2AS_2AS2 will only increase actual real output if the government implements a contractionary fiscal policy to keep aggregate demand stable.
