The Figure Below Shows Equilibrium in an Aggregate Demand-Aggregate Supply

question 61

Multiple Choice

The figure below shows equilibrium in an aggregate demand-aggregate supply model.Which of these statements is true if the economy described by this figure is at point M on SRAS100?

• A)The actual price level is lower than expected with a $200 billion expansionary gap.
• B)The actual price level is lower than expected with a $200 billion recessionary gap.
• C)The actual price level is higher than expected with a $200 billion recessionary gap.
• D)The actual price level is higher than expected with a $200 billion expansionary gap.
• E)The economy is in equilibrium in the short run and the long run.

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Definitions:

Discount Rate

The interest rate used in determining the present value of future cash flows or in evaluating the attractiveness of an investment.

Project Cash Flows

The net amount of cash that is generated or expended by a particular project or investment, after accounting for all inflows and outflows.

Project Profitability Index

The ratio of the net present value of a project’s cash flows to the investment required.

Net Present Values

refers to the calculation that determines the present value of a series of future cash flows by discounting them at a certain rate, often used for assessing the profitability of investments.