Within the AD/AS Model, Which One of the Following Adjustments

question 89

Multiple Choice

Within the AD/AS model, which one of the following adjustments will cause the economy to return to its long-run capacity when output is temporarily greater than the economy's long-run potential?

• A) Lower wage rates and resource prices reduce short-run aggregate supply.
• B) Lower interest rates increase aggregate demand and, thereby, stimulate output.
• C) Higher wage rates and resource prices reduce short-run aggregate supply.
• D) A decrease in prices reduces aggregate demand.

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Definitions:

Expected Dividend

The projected payment a company is expected to distribute to its shareholders from its earnings.

Market Risk Premium

The market risk premium is the additional return an investor expects from holding a risky market portfolio instead of risk-free assets.

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, often represented by government bonds.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher than market volatility, while a beta less than 1 indicates lower.