Exhibit 20A-2 Macro AD/AS Models

question 2

Multiple Choice

Exhibit 20A-2 Macro AD/AS Models

In Panel (b) of Exhibit 20A-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:

Population Mean

The average of all the items in a population, representing the central tendency.

Critical Value

A point on a statistical distribution that represents a threshold at which the null hypothesis is rejected if exceeded.

Alpha

Alpha, also known as the level of significance, indicates the threshold at which we reject the null hypothesis, typically set at 0.05 or 5%.

Two-tailed

A test of significance that checks for the possibility of either a positive or negative effect and doubles the significance level.