The Diagram Below Shows an AD/AS Model for a Hypothetical

question 39

Multiple Choice

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A.
FIGURE 24-3
-Refer to Figure 24-3.After the negative aggregate demand shock shown in the diagram (from AD1 to AD2) ,which of the following describes the adjustment process that would return the economy to its long -run equilibrium?

• A)Wages would eventually fall,causing the AD curve to shift to the right,returning to the original equilibrium at point A.
• B)Wages would eventually fall,causing the AS curve to shift slowly to the right,reaching a new equilibrium at point E.
• C)Wages would increase,causing the AS curve to shift to the right,reaching a new equilibrium at point E.
• D)Wages would increase,causing the AD curve to shift to the right,returning to the original equilibrium at point A.
• E)Potential output would decrease from 1000 to 900 and a new long -run equilibrium would be established at point D.

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Definitions:

Break-even Sales

Break-even sales represent the amount of revenue needed to cover all fixed and variable costs, indicating the point at which a business neither makes a profit nor incurs a loss.

Break-even Sales

The level of sales at which a business generates revenue exactly equal to its costs, resulting in no profit or loss.

Consumer Division

A segment within a company focused on selling products and services directly to consumers, as opposed to business or commercial clients.

Break-even Sales

The amount of revenue needed to cover both the variable and fixed costs of a business, resulting in neither profit nor loss.