Suppose That a Shock Causes the Aggregate Demand Curve to Shift

question 161

Multiple Choice

Suppose that a shock causes the aggregate demand curve to shift rightward. If the Fed does nothing

• A) the economy will experience a temporary reduction in employment but will eventually return to full employment.
• B) output initially will exceed potential GDP, but the economy will return to potential GDP with a higher price level.
• C) the short-run aggregate supply curve will not shift leftward and there will be continued inflation.
• D) eventually the short-run aggregate supply curve will shift leftward and there will be continued inflation.

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Definitions:

FIFO

Stands for First In, First Out, an inventory valuation method where goods purchased or produced first are sold or used first.

Gross profit

The difference between revenue and the cost of goods sold (COGS), representing the profit made before deducting operating expenses.

Net income

The profit of a company after all revenues, costs, and expenses have been subtracted, indicating the actual earnings.

Periodic inventory system

An inventory accounting system where updates to inventory levels are made on a periodic basis, rather than each time a sale or purchase occurs.