If an Unanticipated Increase in Aggregate Demand Results in an Output

question 138

Multiple Choice

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

• A) an increase in the economy's productive capacity (LRAS shifts to the right).
• B) higher resource prices, an increase in SRAS, and a decrease in the general level of prices.
• C) higher resource prices, a decrease in SRAS, and an increase in the general level of prices.
• D) a decrease in the natural rate of unemployment.

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Definitions:

Specialize

To focus on a particular area of study, work, or production, often improving efficiency and quality in that domain.

Trade

An exchange of goods or services between two or more parties.

Production Possibilities

The various combinations of goods and services that can be produced from a fixed set of resources.

Specialization

Specialization involves focusing on a narrow area of knowledge or skill, enabling individuals or firms to produce goods or services more efficiently.