Exhibit 17-2 Aggregate Demand and Aggregate Supply Curves as Shown

question 66

Multiple Choice

Exhibit 17-2 Aggregate demand and aggregate supply curves As shown in Exhibit 17-2, if people behave according to rational expectations theory, an increase in the aggregate demand curve from AD₁ to AD₂ will cause the price level to move:

• A)directly from 100 to 105 and then remain at 105.
• B)directly from 100 to 110 and then remain at 110.
• C)from 100 to 105 initially and then eventually move back to 100.
• D)from 100 to 105 initially and then eventually move to 110.

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Definitions:

On-The-Job Training

A method of learning skills and competencies required for a job through direct performance during work hours.

Negative Income Tax

A welfare system within which individuals earning below a certain amount receive supplemental pay from the government instead of paying taxes.

Income Distribution

Income distribution is the way in which total income is shared among the population of a country or region.

Progressive Tax Rates

A tax system where the tax rate increases as the taxable amount or income increases, imposing a higher percentage rate on higher income earners.