Figure 7-7 -Refer to Figure 7-7. Suppose the Economy Is Initially at Is

question 54

Multiple Choice

Figure 7-7
-Refer to Figure 7-7. Suppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?

• A) Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed.
• B) Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS₁ closing the gap at H.
• C) In response to rising prices, firms will increase production moving along SRAS₂ until long- run equilibrium is restored at J and the gap is closed.
• D) Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS₂ until long-run equilibrium is restored at J and the gap is closed.

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Definitions:

Cause-And-Effect

A relationship between two variables where a change in one variable (cause) directly results in a change in another variable (effect).

SAT Scores

Standardized test scores from the Scholastic Assessment Test, used in the United States for college admissions to assess a student's readiness for higher education.

GPA

Grade Point Average, a standardized measure of academic achievement calculated by averaging the numerical values assigned to grade letters.

Lurking Variables

Hidden variables that are not measured in a study but can influence the relationship between the studied variables, potentially leading to misleading conclusions.