A Shock to Aggregate Demand Can Be Created

question 19

Multiple Choice

A shock to aggregate demand can be created

• A) only by a shock to some element of the IS curve.
• B) only by a shock to some element of the LM curve.
• C) by a shock to either the IS curve or the LM curve.
• D) by a shock to inflationary expectations that moves the price-adjustment schedule.
• E) whenever some endogenous change in government spending policy is observed.

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Definitions:

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Equilibrium

When aggregate demand equals aggregate supply.

MC = MR

A principle in economics stating that profit maximization occurs when a firm's marginal cost (MC) equals its marginal revenue (MR).

Marginal Revenue

The additional income gained from selling one more unit of a good or service.