The Economy Is Initially in Long-Run Equilibrium

question 141

Multiple Choice

The economy is initially in long-run equilibrium.The AD curve shifts to the right and the price level rises.Assuming that the economy is self-regulating,the SRAS curve will shift to the left and the price level will rise even further.If the price level now remains constant,what have we witnessed?

• A) one-shot demand-induced inflation
• B) continued demand-induced inflation
• C) one-shot supply-induced inflation
• D) one-shot inflation that was partly demand-induced and partly supply-induced
• E) continued supply-side inflation

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Definitions:

Common Stock

A form of equity security signifying an ownership stake in a company, granting the holder the right to participate in voting on corporate issues and to earn dividends.

Market Price

The present rate at which a service or asset is available for purchase or sale on an open market.

Dividends

Disbursements issued by a corporation to its owners, often in the form of profit sharing.

Price-Earnings Ratio

A valuation metric for stocks, calculated by dividing the market price per share by the earnings per share.