If an Economy Was Initially in Long-Run Equilibrium,an Unanticipated Increase

question 182

Multiple Choice

If an economy was initially in long-run equilibrium,an unanticipated increase in aggregate demand will tend to cause

• A)an increase in unemployment.
• B)a decrease in the price of resources.
• C)a reduction in real output that will spiral downward into a prolonged recession.
• D)a temporarily high level of output and employment that cannot be maintained.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price.

National Income

Total income earned by resource suppliers for their contributions to gross domestic product plus taxes on production and imports; the sum of wages and salaries, rent, interest, profit, proprietors’ income, and such taxes.

U.S. Farm Products

Agricultural commodities produced in the United States, including grains, fruits, vegetables, meat, and dairy products.

Economic Growth

(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.