Within the Framework of the AS/AD Model, Which of the Following

question 5

Multiple Choice

Within the framework of the AS/AD model, which of the following is a true statement regarding short-run aggregate supply?

• A) An increase in prices temporarily improves profit margins because important components of costs are fixed in the short run.
• B) An increase in prices leads to higher interest rates, which temporarily improves profit margins.
• C) An increase in prices leads to an expansion in the money supply, which stimulates additional output.
• D) An increase in prices increases real wage rates and thereby expands the size of the economy's resource base.

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Definitions:

Physiological Response

The automatic reactions of the body to a stimulus, such as an increase in heart rate in response to stress.

Cortisol

A steroid hormone released by the adrenal glands in response to stress or low blood glucose levels; plays a key role in metabolism and the body’s stress response.

Glucagon

A hormone produced by the pancreas that increases blood glucose levels, counteracting the action of insulin.

Histamine

A compound involved in local immune responses, regulating physiological function in the gut and acting as a neurotransmitter.