​ in the Long Run, a Decrease in Aggregate Demand

question 142

Multiple Choice

​ In the long run, a decrease in aggregate demand causes the price level to _______ and the long-run aggregate supply curve to _____________.

• A) ​decrease; decrease
• B) ​increase; increase
• C) ​decrease; remain unchanged
• D) ​increase; remain unchanged

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Definitions:

Financial Leverage

The use of borrowed money (debt) to finance the acquisition of assets, with the expectation that the income or capital gain from the new assets will exceed the cost of borrowing.

Par Bonds

Bonds that are issued and redeemed at their face value, or par value, which represents the nominal or dollar value printed on the bond.

Expected Perpetual EBIT

The forecasted continuous earnings before interest and taxes that a company expects to generate over an indefinite future period, assuming a steady state of operations.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, representing its cost of equity.