Table 7-1 Table 7-1 Shows the Aggregate Demand and Short-Run

question 156

Multiple Choice

Table 7-1
Table 7-1 shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion.
-Refer to Table 7-1. What is the initial real GDP and price level?

• A) Real GDP = 7.6 trillion; price level = 1.2
• B) Real GDP = 7.6 trillion; price level = 2.8
• C) Real GDP = 6.8 trillion; price level = 2.0
• D) Real GDP = 7.8 trillion; price level = 1.0

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Definitions:

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, eroding purchasing power.

Annual Output

The total value of goods and services produced by an economy or a firm in one year.

Rational Expectations

The economic theory suggesting individuals make decisions based on their logical expectations for the future, effectively using all available information to predict future events accurately.

Long-Run Phillips Curve

A concept suggesting that in the long term, there is no trade-off between inflation and unemployment, implying that inflation does not affect the natural rate of unemployment.