If an Unanticipated Decrease in Aggregate Demand Results in an Output

question 7

Multiple Choice

If an unanticipated decrease in aggregate demand results in an output below the economy's long-run capacity, long-run equilibrium will eventually be restored by

• A) an increase in the rate of inflation.
• B) lower resource prices and lower real interest rates.
• C) higher resource prices and higher real interest rates.
• D) a decrease in the natural rate of unemployment.

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Definitions:

Financial Account

A component of a country's balance of payments that records transactions involving financial assets and liabilities between residents and non-residents over a period.

Capital Account

A national account that shows the net change in asset ownership for a nation, including assets from financial and physical capital.

Current Account

This term refers to a country's transactions with the rest of the world, including trade in goods and services, earnings on investments, and transfer payments.

Exchange Rate

The value at which one currency can be exchanged for another in the foreign exchange market, affecting international trade and investments.