Use the Following to Answer Questions

question 11

Multiple Choice

Use the following to answer questions .
Exhibit: Responses to a Decrease in Aggregate Demand
-(Exhibit: Responses to a Decrease in Aggregate Demand) The economy is initially in equilibrium at point (1) . Now suppose a reduction in the money supply causes aggregate demand to fall to AD₂. The below potential output level of Y₂ will exist as long as

• A) policymakers refrain from using discretionary policies.
• B) workers fail to recognize that their real wages have increased and that they need to accept lower nominal wages.
• C) economic agents do not respond to falling prices by increasing aggregate demand back to AD₁.
• D) producers do not increase the price of their output.

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Definitions:

Accumulated Depreciation

The cumulative depreciation of an asset up to a single point in its life, reflecting how much of the asset's value has been used up.

Deferred Revenues

Income received by a company for goods to be delivered or services to be provided in the future, recorded as a liability until earned.

Liability

A financial obligation or debt owed by a business or individual to another entity, to be paid in the future.

Prepaid Rent

An expense that has been paid in advance and is considered an asset until the benefit of the payment is consumed.