Use the Following to Answer Questions

question 160

Multiple Choice

Use the following to answer questions .
Exhibit: Short-run Aggregate Supply
-(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose the stock market crashes, significantly reducing household wealth. What happens in the short-run?

• A) Real GDP remains at Y₁ but the price level falls to P₃.
• B) The quantity of real GDP demanded falls resulting in a movement from point A to point F.
• C) Real GDP decreases to Y₃ and the price level falls to P₃.
• D) The economy moves to a short-run equilibrium at point D.

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Definitions:

Long Bonds

Bonds with a long duration to maturity, typically over 10 years, often associated with higher risk but higher yield.

Capital Gains Yield

The price appreciation component of the total return on an investment, calculated as the increase in the investment's price divided by its initial price.

Dividends

Profit distributions paid out to shareholders by a company.

Shares

Ownership units in a corporation, representing a portion of the company's capital.