An Increase in Aggregate Demand Is Beneficial in the Short

question 141

Multiple Choice

An increase in aggregate demand is beneficial in the short run because ________ but not in the long run because ________.

• A) output decreases; the unemployment rate falls
• B) the unemployment rate falls; the price level rises
• C) wages decrease; wages increase
• D) real wealth decreases; real wealth increases
• E) wages increase; the unemployment rate rises

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Definitions:

Risk-neutral

Refers to a mindset or condition where an individual or entity is indifferent to risk when making investment decisions, focusing instead on the potential returns without giving additional weight to the possibility of loss.

Expected Utility

a theory in economics that quantifies how choices are made when outcomes are uncertain, aiming to maximize the expected utility rather than merely the expected monetary value.

Marginal Utility

The additional satisfaction or benefit (utility) a consumer receives from consuming one more unit of a good or service.

Expected Value

The weighted average of all possible values of a random variable, considering the probabilities of each outcome.