Compared to an Initial Long-Run Equilibrium, an Aggregate Supply Shock

question 140

Multiple Choice

Compared to an initial long-run equilibrium, an aggregate supply shock that reduces potential output results in a(n) ________ gap in the short run and ________ output and ________ inflation in the long run.

• A)recessionary; lower; higher
• B)expansionary; lower; higher
• C)expansionary; higher; higher
• D)recessionary; potential; higher

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Definitions:

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity of that good supplied by producers, achieving a state of market balance.

Marginal Cost

The additional cost incurred to produce one more unit of a good or service.

Marijuana

A psychoactive drug from the Cannabis plant, used for medical or recreational purposes.

Shipment Seized

Refers to the action taken by authorities to take control of goods being transported due to regulatory, legal, or security violations.