Use the Following to Answer Questions

question 25

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 the stock market crashes, significantly reducing household wealth. What happens in the long-run, all other things unchanged?

• A) The aggregate demand curve will shift back to AD₁.
• B) The economy will be stuck at an output level below its potential level.
• C) The economy returns to full-employment equilibrium at point A.
• D) The economy returns to full-employment equilibrium at point D.

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Definitions:

Equilibrium Price

The market cost where the supply of merchandise matches the demand level.

Equilibrium Quantity

The amount of products or services available matches the amount desired by consumers at the current market rate.

Price Ceilings

Government-imposed limits on how high prices for essential goods or services can be, intended to protect consumers from price gouging during shortages or crises.

Quantity Supplied

The amount of a product that producers are willing and able to sell at a particular price over a given period of time.