What are three significant generalizations supported by results from the extended AD-AS model?
What will be an ideal response?
First, under normal circumstances, there is a short-run trade off between the rate of inflation and the rate of unemployment. Second, aggregate supply shocks can cause both higher rates of inflation and higher rates of unemployment. Third, there is no significant trade off between inflation and unemployment over longer periods of time.
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An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ________ in the inflation rate, leading to a(n) ________ in output.
A. decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease
A rise in the price level brings a ________ in the real wage rate that ________ profits which leads to ________ production
A) rise; reduces; increasing B) rise; reduces; decreasing C) fall; increases; increasing D) rise; increases; decreasing E) fall; decreases; decreasing
Two inputs ______ when they must be combined in a fixed ratio.
A. are perfect substitutes B. are perfect complements C. represent Cobb-Douglas technology D. are fixed inputs
In the graph shown, which of the world supply curves create a trade deficit?
A. WAS0 B. WAS1 C. WAS2 D. None create deficits.