-Using the Data in the Above Table, in the Long

question 187

Multiple Choice

$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Price } \\\text { level }\end{array} & \begin{array} { l } \text { A ggregate } \\\text { demand } \\\text { (trillions of } \\\text { 2005 dollars) }\end{array} & \begin{array} { l } \text { Short-run } \\\text { aggregate } \\\text { supply } \\\text { (trillions of } \\\text { 2005 dollars) }\end{array} & \begin{array} { l } \text { Long-run } \\\text { aggregate } \\\text { supply } \\\text { (trillions of } \\\text { 2005 dollars) }\end{array} \\\hline 100 & 13 & 9 & 10 \\\hline 105 & 12 & 10 & 10 \\\hline 110 & 11 & 11 & 10 \\\hline 115 & 10 & 13 & 10 \\\hline\end{array}$$
-Using the data in the above table, in the long -run macroeconomic equilibrium, the price level is____________ and the level of real GDP is____________ .

• A) 115; $11 trillion
• B) 115; $10 trillion
• C) 105; $11 trillion
• D) 110; $10 trillion

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Definitions:

Socially Optimal

A state or condition in which resources are allocated in the most efficient manner from a societal perspective, maximizing benefits and minimizing costs to the society as a whole.

External Benefits

Positive effects of a transaction that affect third parties not directly involved in the transaction.

External Costs

Costs that are not borne by the parties involved in an economic transaction but are imposed on other individuals or society at large, such as pollution or congestion.

Coase Theorem

A principle suggesting that if transaction costs are low, private bargains will efficiently resolve the allocation of resources and distribution of goods.