Consider the Basic AD/AS Model with a Very Steep,positively Sloped

question 24

Multiple Choice

Consider the basic AD/AS model with a very steep,positively sloped AS curve.A negative aggregate demand shock will result in

• A)an increase in the price level and a decrease in real national income.
• B)an increase in both the price level and real national income.
• C)a decrease in the price level with almost no change in real national income.
• D)a decrease in the price level and an increase in real national income.
• E)no change in either price level or output.

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Definitions:

Traditional Theory

This term encompasses theories that rely on established norms and practices, often contrasting with modern or contemporary theories.

Budget Line

All combinations of goods for which the total amount of money spent is equal to income.

Rational Producers

Producers who aim to maximize their profits or benefits by making decisions based on logical analysis and available information.

Input Prices

The costs associated with the purchase of the raw materials, labor, and other inputs required in the production of goods or services.