Following Any AD or AS Shock, Economists Typically Assume That

question 11

Multiple Choice

Following any AD or AS shock, economists typically assume that the adjustment process continues until

• A)the output gap is at a stable level.
• B)factor prices have returned to their levels previous to the shock.
• C)Y* adjusts to its long- run equilibrium level.
• D)the AD and AS curves intersect each other at the correct price level.
• E)real GDP returns to Y*.

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Definitions:

Equivalent Variation

A measure used in economics to evaluate the change in wealth that would leave an individual's utility unchanged before and after a policy change or a price change.

Compensating Variation

A monetary measure of the amount of money a consumer would need to reach their original utility level after a price change.

Tax

A compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Utility Function

A mathematical expression that describes how the total satisfaction or happiness of a consumer changes with changes in consumption of goods and services.