Use the Following to Answer Questions

question 140

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 in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

• A) A stabilization policy would return real GDP to its potential at a price level of P_a while a nonintervention policy would return real GDP to its potential at a price level of P_d.
• B) A stabilization policy would return real GDP to its potential at a price level of P_d while a nonintervention policy would return real GDP to its potential at a price level of P_a.
• C) Both policies would return real GDP to its potential at a price level of P_a.
• D) Both policies would return real GDP to its potential at a price level of P_d.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, typically with fixed dividends.

Annual Return

The percentage change in the value of an investment over a one-year period, including dividends, interest, and capital gains.

Supernal Growth

refers to extraordinary or exceptional growth in a business or economic sector.

Dividend

A share of a firm's income allocated to its stockholders, often in cash or extra shares.