Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the short run would be:
A. P3 and Y1.
B. P2 and Y1.
C. P2 and Y3.
D. P1 and Y2.
Answer: B
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As inflation rates increase, money becomes less useful as a
A) store of value. B) double coincidence of wants. C) unit of account. D) medium of exchange.
What is the appropriate monetary policy response to a situation with deficient financial liquidity, when there is a liquidity trap?
A) an open market sale of government bonds B) a decrease in the interest rate on reserves C) an open market purchase of government bonds D) an increase in the interest rate on reserves
Which is an important aspect of the perfectly competitive market that leads to long run equilibrium?
A) perfect information B) freedom of entry and exit C) price taking behavior D) homogeneous products
Deflation is
A. a constant rate of inflation. B. a slow-down in the rate of inflation. C. zero inflation. D. a decline in the average price level.