Use the Following to Answer Questions

question 89

Multiple Choice

Use the following to answer questions .
Exhibit: Aggregate Demand Shifts and Expectations
-(Exhibit: Aggregate Demand Shifts and Expectations) Suppose the economy was operating at point e in period 1. Expansionary fiscal and monetary policies adopted in period 1 resulted in a movement to point g in period 3. When workers and firms adjust their expectations in a higher price level and act on these expectations, the economy moves from a

• A) expansionary phase to a recovery phase.
• B) Phillips phase to a stagflation phase.
• C) Phillips phase to a recovery phase.
• D) stagflation phase to a recovery phase.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Responsiveness of Quantity

The degree to which the quantity demanded or supplied responds to changes in price, income, or other factors.

Responsiveness of Price

The degree to which the demand or supply of a product changes in response to a change in price.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the extra satisfaction or utility gained.