The AD-AS Model in the Diagram Above Shows That at the Initial

question 132

Multiple Choice

The AD-AS model in the diagram above shows that at the initial short-run equilibrium point A,the economy is experiencing ___________ gap.Starting from point A,a decrease in government purchases that shifts the aggregate demand curve from AD to AD' will lead to the long-run equilibrium at point C,thus decreasing output at a ___________ price level and eliminating the output gap.

• A) a recessionary;constant
• B) an expansionary;constant
• C) a recessionary;lower
• D) an expansionary;higher
• E) an expansionary;lower

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Definitions:

Import

The process of importing products or services from foreign countries for the purpose of selling them domestically.

Productivity

A measure of the efficiency of production, often quantified as the ratio of outputs to inputs in a given time period.

Production Possibilities

A graph or curve depicting the maximum output combinations of two goods that can be produced with available resources and technology.

Circular-Flow Diagram

A diagram that represents the transactions in an economy by two kinds of flows around a circle: flows of physical things such as goods or labor in one direction and flows of money to pay for these physical things in the opposite direction.