Suppose the Following Conditions Are Present in the Economy

question 117

Multiple Choice

Suppose the following conditions are present in the economy:
- firms are facing lower-than normal sales and have reduced output
-there is an excess supply of labour and firms are starting to reduce their workforces
Which of the following statements describes the adjustment that will happen in the AD/AS macro model?

• A) Output is below potential; aggregate demand will fall, causing the AD curve to shift to the left. The price level will fall until equilibrium is restored at Y*.
• B) The economy is in equilibrium at Y*, but wages are falling. The AS curve will shift to the right until a new equilibrium is reached at a lower price level.
• C) Output is below potential; wages will eventually fall; the AS curve will slowly shift to the right until equilibrium is restored at Y*.
• D) Output is above potential; wages will fall, causing the AS curve to shift to the right until equilibrium is restored at Y*.
• E) Output is above potential; aggregate demand will fall, causing the AD curve to shift to the left until equilibrium is restored at Y*.

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Definitions:

Specific Phobia

A marked fear of a specific object or situation; a general label for any phobia other than agoraphobia and social phobia.

Phobic Disorder

An anxiety disorder characterized by an intense, irrational fear of specific objects, activities, or situations leading to avoidance behavior.

Somatoform Disorder

Mental disorders characterized by physical symptoms without a clear physical cause, where symptoms are thought to be the manifestation of psychological conflicts or distress.

Conversion Reaction

A psychological response where emotional distress is expressed through physical symptoms.