According to the Figure of ADAS Curves and Assuming the Country

question 52

Multiple Choice

According to the figure of ADAS curves and assuming the country begins on AD₁ and SRAS₁, what will happen in the short and long run if the government begins a sustained period of increased spending?

• A) The economy moves from point C to E to B.
• B) The economy moves from point D to C to A.
• C) The economy moves from point D to C to E.
• D) The economy moves from point C to A to B.

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Definitions:

Inventory

The total amount of goods and materials held in stock by a business, warehouse, or store.

Gross Domestic Product

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a certain period of time.

Leakage

Any diversion of income from the domestic spending stream; includes saving, taxes, and imports.