If the Economy's AS Curve Is Upward Sloping,a Negative Shock

question 127

Multiple Choice

If the economy's AS curve is upward sloping,a negative shock to aggregate demand will result in

• A)an increase in prices and no change in real GDP.
• B)a decrease in prices but no change in real GDP.
• C)an increase in real GDP and no change in prices.
• D)an increase in both real GDP and prices.
• E)a decrease in both real GDP and prices.

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Definitions:

Severe Recession

An unusually deep and prolonged downturn in economic activity that exceeds the standard definition of a recession, often marked by significant declines in GDP and employment.

Interest Rates

The cost of borrowing money or the return on invested savings, typically expressed as a percentage of the principal amount per year.

Deposit Expansion Multiplier

The ratio of the amount by which deposits can increase to the original amount of new reserves; it shows how money multiplies in the banking system.

Reserve Ratio

This is the fraction of depositors' balances banks must have on hand as cash.