If the economy is operating at a point at which short-run aggregate supply is horizontal, then
A. real GDP cannot contract.
B. real GDP cannot expand.
C. increases in aggregate demand do not increase the price level.
D. then increases in aggregate demand do not increase real GDP.
Answer: C
You might also like to view...
Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output
The expectations-augmented Phillips curve is given by ? = ?e - 2.5 (u - 0.04). Suppose ? = 0.08 and ?e = 0.03. (a) What is the natural rate of unemployment? (b) What is the actual rate of unemployment? (c) How much is actual GDP compared with full-employment GDP?
Exhibit 8-7 Monopolist
?
According to the information provided in Exhibit 8-7, if the Rudd Ice Company is a monopoly and is currently charging a price of $6, what would you advise Rudd to do?
A. Stay where he is currently operating because he is charging the profit maximizing price. B. Increase price and decrease output. C. Decrease price and increase output. D. Increase output and hold price constant.
Shoe-leather costs refer to:
A. the money, time, and opportunity used to change prices to keep pace with inflation. B. being penalized via taxes for making more money in dollars, even though real purchasing power hasn't changed at all. C. the time, money, and effort one has to spend managing cash in the face of inflation. D. labor costs associated with inflation.
In the classical model, aggregate demand and aggregate supply will
A. intersect at the point of full employment. B. intersect at less than full employment. C. not intersect. D. not exist.