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:

Monopolist

An individual or company that is the sole provider of a particular product or service in the market, giving them significant control over prices and market conditions.

Marginal Cost Pricing

A strategy where the price of a good or service is set equal to the marginal cost of producing one more unit of it.

Monopolist

An individual or entity that has exclusive control over the supply of a particular good or service, enabling them to manipulate market prices.

Regulated

subject to rules, standards, and guidelines set by governing bodies to control activities, processes, or industries for safety, fairness, or efficiency.