Suppose Aggregate Demand Increases by Less Than Expected

question 86

Multiple Choice

Suppose aggregate demand increases by less than expected. Which of the following describes what will occur?

• A) The price level will fall.
• B) Real GDP will be more than potential GDP.
• C) Real GDP will be less than potential GDP.
• D) Both answers A and B are correct.

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Definitions:

Activity Levels

Refers to the volume of work or operations within a specific time frame in a business, affecting cost behavior and operational efficiency.

Goal Conflict

A situation where different parties have goals that are not aligned, leading to potential conflict or inefficiency.

Budgetary Slack

The intentional underestimation of revenues and/or overestimation of expenses in a budget to create the appearance of having less money available than might actually be available.

Padding

The practice of inflating estimates or financial figures to create a buffer for unexpected costs or to create the appearance of greater value.