Suppose a recession occurs as a result of a negative supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would
A) bring real GDP back to potential GDP more quickly but would result in a permanently higher price level.
B) bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly.
C) quickly result in a new, higher level of real GDP and a permanently lower price level.
D) bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.
Answer: A
You might also like to view...
The impact of an increase in government purchases may be smaller than first assumed (in the crowding out effect) because: a. As the new spending takes place, income and real GDP will rise which will cause households and firms to increase their demand for money to accommodate increased buying and selling. b. The increase in the demand for money will cause the interest rate to rise
c. As a result of the higher interest rate, consumers may decide against buying a car, a home, or other interest sensitive goods, and businesses may cancel or scale back plans to expand or buy new capital equipment. d. All of the above
________ legislation generates concentrated benefits but imposes widespread costs, while ________ legislation generates concentrated benefits for one group, and imposes concentrated costs upon another group
a. Public interest; special interest b. Special interest; median voter c. Rationally ignorant; public interest d. Special interest; competing-interest
A firm's trademark is protected from misuse if it is registered with the
A) U.S.D.A. B) U.S. Patent and Trademark Office. C) U.S. Supreme Court. D) F.C.C.
A rightward shift of the entire demand curve
A. might be due to a decline in income if it is a normal good. B. might be due to an increase in income if it is an inferior good. C. might be due to a tax increase on the product. D. might be due to an increase in population.