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:

Purely Competitive

Refers to a market configuration in which numerous companies offer the same products, with no single company having the power to affect the market's pricing.

Short-Run Equilibrium

A state in which market supply and demand balance out at a specific price level, usually considered within a timeframe where some factors are fixed.

Zero Economic Profits

A situation where a firm's total revenues exactly equal its total costs, leading to no net profit or loss after considering both explicit and implicit costs.

Normal Profits

An economic condition where a firm's total revenue is equal to its total costs, allowing it to cover all its opportunity costs.