Using Figure 8

question 11

Multiple Choice

Using Figure 8.5,if the equilibrium real output is Q₂ then

• A)Aggregate demand must be AD₁.
• B)Aggregate demand could be either AD₁ or AD₂ depending on the level of aggregate supply.
• C)The equilibrium price level is P₂.
• D)Aggregate supply must be AS₁ and the equilibrium price level must be P₁.

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Definitions:

Default Risk Premium

The additional yield that an investor demands for holding a bond with default risk over a similar risk-free security.

Nominal Interest Rate

The rate of interest before adjustments for inflation.

Bond Yield

The return an investor realizes on a bond, calculated by dividing the annual interest payments by the bond's current market price.

Borrowing

The act of obtaining funds from another party with the agreement to repay, typically with interest.