Consider the Basic AD/AS Macro Model,initially in a Long-Run Equilibrium

question 12

Multiple Choice

Consider the basic AD/AS macro model,initially in a long-run equilibrium.A positive AS shock will ________ the price level and ________ output in the short run.In the long run,the price level will ________ and output ________.

• A)decrease; decrease; decrease further; will decrease further
• B)decrease; increase; decrease further; will be restored to potential output
• C)decrease; increase; return to its initial level; will be restored to potential output
• D)increase; increase; decrease; will be restored to potential output
• E)increase; increase; return to its initial level; will be restored to potential output

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Definitions:

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid out.

Mismatching Problems

Issues that arise when expenses are recognized in a different period than the revenues they help to generate, potentially distorting financial statements.

Accrual Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Cash-Basis Accounting

An accounting method where revenues and expenses are recorded when cash is received or paid, rather than when they are earned or incurred.