The Diagram Below Shows an AD/AS Model for a Hypothetical

question 45

Multiple Choice

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A. FIGURE 24-3 Refer to Figure 24-3.After the negative aggregate demand shock shown in the diagram (from to ) ,which of the following describes the adjustment process that would return the economy to its long-run equilibrium?

• A)Wages would eventually fall,causing the AD curve to shift to the right,returning to the original equilibrium at point A.
• B)Wages would eventually fall,causing the AS curve to shift slowly to the right,reaching a new equilibrium at point E.
• C)Wages would increase,causing the AS curve to shift to the right,reaching a new equilibrium at point E.
• D)Wages would increase,causing the AD curve to shift to the right,returning to the original equilibrium at point A.
• E)Potential output would decrease from 1000 to 900 and a new long-run equilibrium would be established at point D.

---

Definitions:

Income

Funds acquired regularly as a result of work or investment ventures.

Utility Function

Represents a consumer's preferences in a way that the utility or satisfaction they get from various goods or services can be measured and compared.

Budget Constraint

A limitation on the consumption choices of individuals or households, based on their income and the prices of goods and services.

Income

Income is the amount of money or goods received, typically within a certain period, in exchange for labor, goods sold, or investment.