Within the AD/AS Model, How Does an Economy Adjust to an Output

question 177

Multiple Choice

Within the AD/AS model, how does an economy adjust to an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand?

• A) Wage rates and resource prices will fall, causing a decrease in aggregate demand and the restoration of equilibrium at a higher price level.
• B) Long-run aggregate supply will increase, leading to a new equilibrium at a lower price level.
• C) Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate.
• D) Lower real interest rates will stimulate demand and restore equilibrium at the initial price level.

---

Definitions:

Creative Practice

Involves engaging in activities or processes that aim to produce original and innovative ideas, solutions, or works.

Commercial Usefulness

The extent to which a product or service can be sold or used in a commercial context to satisfy a need or want.

Dimensions

Aspects or features that can be measured or used to define the characteristics of something.

Preferred Solution

The most favored or desirable resolution to a problem or issue among several alternatives.