Consider the AD/AS Model

question 50

Multiple Choice

Consider the AD/AS model. In the long run, after factor prices have fully adjusted to any output gaps, real GDP

• A)is determined by aggregate demand and the price level by potential output.
• B)and the price level are determined by "long- run aggregate supply".
• C)is determined by AD and the price level is determined by the AS curve.
• D)and the price level are determined by aggregate demand.
• E)is determined by potential output and the price level by aggregate demand.

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Definitions:

Injunctions

Injunctions are legal orders issued by a court that require a party to do or abstain from doing specific acts.

Liability Rules

Legal principles that govern the allocation of costs for damages or harm among parties in civil lawsuits.

Coase Theorem

A principle stating that if trade or bargaining is possible without cost, then the allocation of resources will be efficient and invariant to the allocation of property rights.

Externality

A side effect or consequence of an economic activity that affects other parties without this being reflected in the cost of the goods or services involved.