FIGURE 24-5 -Refer to Figure 24-5.Following a Positive Demand Shock That Takes

question 56

Multiple Choice

FIGURE 24-5
-Refer to Figure 24-5.Following a positive demand shock that takes the economy from E₀ to E₁,the movement of the economy from E₁ to E₂ indicates that

• A)a demand shock can keep real GDP above potential output permanently.
• B)an increase in the price level causes the AS curve to shift to the left.
• C)an increase in the price level causes the AD curve to shift to the left.
• D)the economy cannot return to potential output without government intervention.
• E)the output effect of a demand shock will be reversed in the long run when wages and prices are fully adjusted.

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Definitions:

Profits

The financial gain received by a business after subtracting the total costs from the total revenues generated through its operations.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price.

Marginal Cost

The additional cost of producing one more unit of a product or service.

Profit-Maximizing

A strategy or approach aimed at achieving the highest possible profit from business operations.