-An Economy Is at Potential GDP and the Price Level

question 38

Multiple Choice

-An economy is at potential GDP and the price level is 100 in the figure above. If aggregate demand unexpectedly increases so that the aggregate demand curve shifts to AD₁, in the short run the inflation rate is

• A) 0 percent a year.
• B) 10 percent a year.
• C) 20 percent a year.
• D) More than 20 percent a year.

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Definitions:

Actual Production

The quantity of goods or services produced by a firm, industry, or economy within a specific period, factual and not estimated.

Consumer Surplus

The variance between what consumers are ready and capable of spending on a product or service and the actual sum they end up paying.

Producer Surplus

The difference between what producers are willing to accept for a good or service and the actual price they receive, reflecting the benefit to producers from higher prices.

Consumer Surplus

The gap between what consumers are prepared to spend on a product or service and the actual amount they end up paying.