In the Basic AD/AS Model, the Effect of an Aggregate

question 46

Multiple Choice

In the basic AD/AS model, the effect of an aggregate demand shock is divided between a change in output and a change in the price level. How the effect is divided depends on the

• A)position of the AE curve.
• B)size of the simple multiplier.
• C)slope of the AS curve.
• D)slope of the AD curve.
• E)amount of inflation in the economy.

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Definitions:

Production Possibility

Represents various combinations of amounts of two or more goods or services that can be produced within a given time period, with a given amount of resources, and with technology constraints.

Capital

Capital refers to financial assets or the financial value of assets, such as funds held in deposit accounts as well as the physical factors of production.

Opportunity Cost

The value of the best alternative that is forgone when a choice is made between several mutually exclusive alternatives.

Bowed Outward

Describes a curve (such as in production possibilities frontier) that shows increasing opportunity costs for producing two goods.