Use the Following to Answer Questions

question 161

Multiple Choice

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD₂. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?

• A) The increase in the price level to P_b reduces real GDP demanded, shifting the aggregate demand curve back to AD₁, returning the economy to its potential output at A.
• B) Firms produce more in anticipation of future higher prices, thus shifting the SRAS curve upward until the gap is eliminated at D.
• C) Firms and workers will negotiate higher nominal wages to restore lost purchasing power. This shifts the SRAS curve to the left until the gap is eliminated at D.
• D) The increase in the price level to P_b decreases consumption which in turn leads firms to cut production shifting the SRAS curve to the left until the gap is eliminated at D.

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Definitions:

Clone

Genetic copy of an organism.

Genetic Copy

A genetic copy refers to an organism or cell that has the exact same genetic makeup as another, essentially a synonym for a clone but often used in the context of molecular genetics.

Johannes Miescher

A Swiss biologist who discovered nucleic acids, thus laying the groundwork for the field of molecular biology.

Isolate DNA

The process of separating DNA from other cellular components to study its structure, function, or for genetic engineering purposes.