FIGURE 23-1 -Refer to Figure 23-1.Assume the Economy Is Initially in Equilibrium

question 31

Multiple Choice

FIGURE 23-1

-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose there is an exogenous rise in the price level to P1.Which of the following statements describes the likely macroeconomic effects?

• A)The AE curve shifts to AE1,a new equilibrium is established at point U,and the AD curve shifts from AD0 to AD1,and equilibrium from point B to point D.
• B)The AE curve shifts to AE2,a new equilibrium is established at point W,and the economy moves from point B to point C along AD0.
• C)The AE curve shifts to AE1,a new equilibrium is established at point U,and the economy moves from point B to point A along AD0.
• D)The AE curve shifts to AE2,a new equilibrium is established at point W,and the AD curve shifts from AD0 to AD1,and equilibrium moves from point B to point D.

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Definitions:

Net Fixed Assets

The value of a company's property, plant, and equipment minus any depreciation that has been accounted for.

Financial Planning

The process of determining and implementing strategies to achieve financial goals, including savings, investments, and budgeting.

Financial Goals

Objectives or targets set by an individual or organization regarding the management and allocation of finances.

Sustainable Growth

The peak growth rate a business can achieve for its revenue, profits, and dividends without escalating its debt or raising more equity capital.