Use the Following to Answer Questions

question 192

Multiple Choice

Use the following to answer questions:
-(Figure: Classical Model of the Price Level) Refer to Figure: Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD₁ to AD₂, according to this classical model, the SRAS will:

• A) not change, since in the classical model the SRAS and LRAS are both vertical at potential output.
• B) decrease from SRAS₁ to SRAS₂.
• C) increase from SRAS₂ to SRAS₁.
• D) increase from SRAS₁ to SRAS₂.

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Definitions:

Equilibrium Price

The market price where the quantity of goods supplied is equal to the quantity of goods demanded.

Cost

The amount of money, time, and resources associated with producing or acquiring goods and services.

Producer Surplus

The difference between what producers are willing to sell a good for and the price they actually receive, reflecting their benefit.

Equilibrium Market Price

The price at which the quantity of goods supplied is equal to the quantity of goods demanded.