Use the Following to Answer Questions

question 144

Multiple Choice

Use the following to answer questions:
-(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E₁ and moves to E₂, where AD₂ intersects SRAS₁. Finally, the economy moves to E₃. The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____.

• A) E₁ to E₃, ignoring E₂; increases; remains the same
• B) E₂ to E₃, ignoring E₁; remains the same; increases
• C) E₂ to E₃; decreases; remains the same
• D) E₁ to E₂, ignoring E₃; remains the same; remains the same

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Definitions:

Perfectly Competitive Firm

A business that operates in a perfectly competitive market, where it is a price taker due to the presence of many sellers offering homogeneous products.

Marginal Cost

The cost incurred by producing one more unit of a good or service.

Marginal Revenue

The increase in revenue that results from the sale of one additional unit of a product or service.

Average Total Cost

The total cost of production divided by the total quantity produced, representing the average cost per unit of output.