Suppose an Economy Has an Upward-Sloping AS Curve and an Inflationary

question 24

Multiple Choice

Suppose an economy has an upward-sloping AS curve and an inflationary gap equal to $10 billion.If AD shifts to the left by $10 billion,

• A)Real output will fall by less than $10 billion.
• B)Real output will fall by $10 billion.
• C)The inflationary gap will be eliminated.
• D)A recessionary gap will be createD.The AD curve shifts to the left,but the new macro equilibrium will occur at a lower price level.So there will still be an inflationary GDP gap,though it will be smaller.

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Definitions:

Average Total Cost

The total cost of production divided by the quantity of output produced. It includes all fixed and variable costs.

Monopolistically Competitive

Refers to a market structure where many firms sell products that are similar but not identical, allowing for some degree of market power.

Downward-Sloping Demand

A representation of the inverse relationship between price and quantity demanded, highlighting that consumers buy more of a good as its price decreases.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for slight differences to influence consumer choice.