Use the Following to Answer Questions

question 123

Multiple Choice

Use the following to answer questions .
Exhibit: Short-run Aggregate Supply
-(Exhibit: Short-run Aggregate Supply) Suppose that the economy is in long-run equilibrium at point A. Now suppose net exports increase. What happens in the short run?

• A) There will be an increase in aggregate output demanded and the economy moves from point A to point G.
• B) Real GDP increases to Y₂ and the price level rises to P₂.
• C) Real GDP decreases to Y₃ and the price level falls to P₃.
• D) Since the economy is already at its potential output, only the price level will rise to P₂.

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Definitions:

Face Amount

The nominal value of a security stated by the issuer, for example, the value printed on the face of a bond.

Interest Rate

The percentage of a loan charged by a lender to a borrower for the use of assets, typically expressed as an annual percentage rate.

Note Issuance

The process of creating and distributing a promissory note, which is a financial instrument indicating a promise to pay.

Interest Expense

The financial burden on an entity for using loans or credit over a certain period.