Following Any AD or AS Shock,economists Typically Assume That the Adjustment

question 16

Multiple Choice

Following any AD or AS shock,economists typically assume that the adjustment process continues until

• A)the AD and AS curves intersect each other at the correct price level.
• B)real GDP returns to Y*.
• C)factor prices have returned to their levels previous to the shock.
• D)Y* adjusts to its long-run equilibrium level.
• E)the output gap is at a stable level.

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Definitions:

Labor Rate

The cost paid to labor per unit of time, often referred to as wage rate or hourly rate.

Production Capacity

The maximum output that a company can produce in a given period under normal conditions.