Use the Following Graph to Answer the Following Questions

question 142

Multiple Choice

Use the following graph to answer the following questions.The graph depicts an economy where aggregate demand has decreased.Note that long-run aggregate supply remains changed.

-The graph shows a decrease in the price level due to a decrease in aggregate demand.Real gross domestic product (GDP) ,however,does not change.If this were an accurate description of how an economy responds during a recession,which of the following would be an appropriate government response to a decrease in aggregate demand?

• A) The government should make an effort to control prices and limit inflation.
• B) The government should attempt to stimulate short-run aggregate supply.
• C) The government should take active steps to promote full employment.
• D) The government should let the economy adjust to full employment on its own.
• E) The government should restrict international trade and immigration.

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Definitions:

Canadian Dollar Appreciates

An increase in the value of the Canadian dollar relative to another currency.

Foreign Currency

Currency used in a country other than one's own, involved in international trade and investment.

Deficit Trade Balance

A situation where a country's imports exceed its exports, resulting in a negative trade balance.

Free Market

An economic system where prices for goods and services are determined by the open market and by consumers, with minimal government intervention.