Consider the AD/AS Model,and Suppose That the Economy Begins at Potential

question 50

Multiple Choice

Consider the AD/AS model,and suppose that the economy begins at potential output.The effect of a positive AS shock on real GDP will be reversed in the long run with a ________ shift in ________.

• A)rightward; AS
• B)rightward; AD
• C)leftward; AS
• D)leftward; AD
• E)leftward; Y*

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in relative prices, where consumers substitute a cheaper alternative for a more expensive good.

Price

The cash value expected, required, or contributed in transaction for an item.

Delphiniums

A genus of perennial flowering plants known for their tall spikes of colorful flowers.

Second-Class Tickets

Tickets offering a lower level of service or comfort on public transport, often at a reduced price compared to first-class tickets.