Using the Aggregate Demand-Aggregate Supply Model, Predict What Happens in the Short

question 3

Multiple Choice

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

• A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.
• B) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.
• C) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
• D) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.

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Definitions:

Purchase Price

This is the amount of money paid to buy a good, service, or financial asset.

Straight-Line Depreciation

A strategy for spreading out the expenditure of a tangible asset over the duration of its usefulness in uniform annual amounts.

Break-Even Lease Payment

The lease payment amount at which the cost of leasing equals the cost of purchasing the asset.

Financing Rate

The interest rate charged by lenders for borrowing money or the cost of obtaining finance.