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:

MC = MR

The condition where a firm's marginal cost equals its marginal revenue, often used to determine the optimal level of production.

Profit Maximized

The point at which a firm achieves the highest profit possible, given its production costs and the market price of its goods or services.

Marginal Revenue

Additional revenue earned from the sale of one more unit of a good or service.

Market Price

Market price is the current price at which an asset or service can be bought or sold, determined by supply and demand dynamics in the market.