Beginning at a Long- Run Equilibrium, an Increase in Aggregate

question 127

Multiple Choice

Beginning at a long- run equilibrium, an increase in aggregate demand

• A)increases the price level and in the long run increases real GDP.
• B)increases the price level, but in the long run there is no change in real GDP.
• C)increases the price level and in the long run decreases real GDP.
• D)decreases the price level and in the long run increases real GDP.
• E)decreases the price level and in the long run decreases real GDP.

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Definitions:

Budget Constraints

Constraints that consumers face as a result of limited incomes.

Endowment Effect

Tendency of individuals to value an item more when they own it than when they do not.

Reference Point

A basis or standard for evaluation, comparison, or judgment.

Original Endowment

The initial allocation of income, wealth, resources, or goods that an individual or economy possesses before engaging in trade or production activities.