Suppose the Economy Is Initially in a Long-Run Macroeconomic Equilibrium

question 31

Multiple Choice

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that ________ has increased and there is now a(n) ________ gap.

• A)aggregate supply; inflationary
• B)aggregate demand; recessionary
• C)aggregate supply; recessionary
• D)aggregate demand; inflationary

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Definitions:

Expected Variance

The anticipated value of the squared deviation of a random variable from its mean, used to predict the volatility or risk of financial returns.

Holding-Period Return

Is the total return received from holding an asset or portfolio of assets over a period of time, typically expressed as a percentage.

Dividend

A portion of a company's earnings distributed to shareholders, typically in cash or additional stock.

Real Interest Rates

The interest rate adjusted for inflation, representing the true cost of borrowing and the real yield to investors.