In the Basic Model That Includes the AD and LRAS

question 87

Multiple Choice

In the basic model that includes the AD and LRAS curves only, a shock that reduces the velocity of money by 2 percentage points causes:

• A) a decrease of the inflation rate by 2 percentage points.
• B) a decrease of the inflation rate by less than 2 percentage points.
• C) an increase of the inflation rate by 2 percentage points.
• D) an increase of the inflation rate by less than 2 percentage points.

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Definitions:

AVC

Average Variable Cost, which calculates the variable costs per unit of output, encompassing costs that change with the level of output.

ATC

The cost on average to produce each unit of output, calculated by dividing total costs by the quantity of output produced.

MR = MC

Marginal Revenue equals Marginal Cost, a condition for profit maximization in firms, indicating optimal output level.

Monopolistically Competitive

A business environment where multiple organizations supply items that resemble each other but are not exact copies, enabling them to have some market dominance.