​ ​ Exhibit 16A-2 Macro AD/AS Models

question 10

Multiple Choice

​ ​ Exhibit 16A-2 Macro AD/AS Models
​

In Panel (b) of Exhibit 16A-2, the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂. Classical theory argues that:

• A) SRAS will shift to leftward and establish full employment at P ₃ Y _p without government intervention.
• B) higher wages will result in a rightward shift of SRAS.
• C) long-run equilibrium will be established at Y _p and P ₁ .
• D) lower wages will result in a leftward shift of SRAS.

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Definitions:

Discount Rate

The interest rate used to determine the present value of future cash flows.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a specified amount of an underlying asset at a set price within a specified time.

Put Option

A financial agreement granting the holder the option, but no requirement, to sell a certain quantity of an underlying asset at a predetermined price during a defined period.

Forward Contract

An individualized agreement for the purchase or sale of an asset at an agreed-upon price on a specific future date between two parties.