In the Basic AD/AS Model,the Effect of an Aggregate Demand

question 10

Multiple Choice

In the basic AD/AS model,the effect of an aggregate demand shock is divided between a change in output and a change in the price level.How the effect is divided depends on the

• A)amount of inflation in the economy.
• B)position of the AE curve.
• C)size of the simple multiplier.
• D)slope of the AD curve.
• E)slope of the AS curve.

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Definitions:

Short Run

A period in economics during which some factors of production are fixed, leading to outputs that can only be influenced by changes in variable factors.

Long Run

A period during which all factors of production and costs are variable, allowing full adjustment to any change.

Fixed Cost

Describes expenses that do not change with the level of production or business activity, such as rent, salaries, and insurance premiums.

Variable Cost

Costs that change in proportion to the good or service that a business produces.