In the Dynamic Model of Aggregate Demand and Aggregate Supply

question 68

Multiple Choice

In the dynamic model of aggregate demand and aggregate supply, if the central bank chooses a large value of θ_π and a small value of θ_Y, then the DAD curve will be relatively _____, and supply shocks will have relatively _____ impacts on inflation than output.

• A)flat; larger
• B)flat; smaller
• C)steep; larger
• D)steep; smaller

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Definitions:

Mental Set

A framework or tendency to approach problems in a certain way, often based on past experiences and can potentially limit problem-solving abilities.

Cognition

The mental action or process of acquiring knowledge and understanding through thought, experience, and the senses.

Domain-Specific Memory

Memory that applies to a particular area of knowledge or expertise, allowing for better recall of information related to that field.

Problem Representation

The process of mentally framing or defining a problem in a way that will facilitate the search for solutions.