Exhibit 14-8 Aggregate Demand and Supply

question 85

Multiple Choice

Exhibit 14-8 Aggregate demand and supply

In Exhibit 14-8, if aggregate demand shifts from AD₁ to AD₂,

• A) real GDP will increase from $3.0 to $7.0, and the price level will remain the same.
• B) real GDP will increase from $3.0 to $4.0, and the price level will remain the same.
• C) real GDP and the price level will both remain the same.
• D) real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.

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Definitions:

Pure Competition

A market structure characterized by a large number of small firms, identical products, and free entry and exit, leading to price taking behavior.

Monopolistic Competition

A market structure where many firms sell products that are similar but not identical, leading to competition based on quality, price, and marketing.

Economic Profits

The surplus or financial gains achieved by a firm or an individual after accounting for all explicit and implicit costs.

ATC Curve

The Average Total Cost curve in economics represents the total cost per unit of output, including both fixed and variable costs.