The SRAS Is Horizontal at a Price Level of 3

question 5

Multiple Choice

The SRAS is horizontal at a price level of 3.
-According to the AD-AS model,the economy depicted above has a recessionary gap of size ___________ in the short run.In the long run,this output gap will be eliminated through a __________ in the price level to ___________.

• A) 50;rise;4
• B) 50;fall;2
• C) 50;fall;1
• D) 100;rise;4
• E) 100;fall;2

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Definitions:

Contributed Surplus

The excess amount paid by investors over the par value of shares, recorded in the shareholders' equity section of the balance sheet.

Retained Earnings

The amount of net earnings not distributed to shareholders as dividends but reinvested in the business or kept as reserves.

Accumulated Other Comprehensive Income

A component of shareholders' equity on the balance sheet, representing gains and losses not reflected in net income, such as foreign currency items, unrealized gains/losses on certain investments, and pension plan adjustments.

Retractable Preferred Shares

Preferred shares that give the holder the right to require the issuer to repurchase the shares at predetermined conditions.