Exhibit 20A-2 Macro AD/AS Models

question 31

Multiple Choice

Exhibit 20A-2 Macro AD/AS Models

-In Panel (a) of Exhibit 20A-2,the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂.Classical theory argues that:

• A) SRAS will shift to leftward and establish full employment at P₃Yp without government intervention.
• B) higher wages will result in a leftward shift of SRAS.
• C) long-run equilibrium will be established at Yp and P₁.
• D) all of the above will take place.

---

Definitions:

Irrational Behavior

Actions or decisions that are not based on logical reasoning, sound judgment, or align with standard economic theories or expectations.

Regret Aversion

A behavior in decision-making where individuals or entities tend to avoid actions that could potentially lead to regret in the future.

Sentiment-based Risk

The risk of making investment decisions based on market sentiment rather than fundamental analysis.

Noise Trader

An investor who makes buy and sell decisions without the use of fundamental data, contributing to market volatility.