Using the Aggregate Demand-Aggregate Supply Model, Predict What Happens in the Short

question 37

Multiple Choice

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

• A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.
• B) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
• C) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.
• D) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate picture of an economy's size and how it's growing over time.

National Income

The total income earned by a country's residents and businesses, including wages, rent, interest, and profits.

Government Purchases

Expenditures made by local, state, or federal government sectors on goods and services that directly absorb resources.

Net Exports

The difference between a country's total exports of goods and services and its total imports of goods and services; net exports can be a positive or negative value.