An Important Limitation of the AD-AS Model Is That It

question 12

Multiple Choice

An important limitation of the AD-AS model is that it predicts that a collapse in oil prices would result in a fall in the general price level.But the experience of many countries in the late 1980s clearly demonstrated that,when oil prices fall,the overall price level keeps ___________ but at a ___________ pace.That is,the ___________ falls,but not the price level.

• A) rising;slower;inflation rate
• B) rising;faster;inflation rate
• C) falling;slower;inflation rate
• D) rising;slower;unemployment rate
• E) falling;faster;inflation rate

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Definitions:

Payment Date

The specified date on which a dividend or a bond interest payment is to be made to investors.

Temporarily Undervalued

A condition in which a stock is selling for less than its perceived or intrinsic value, often due to short-term market fluctuations.

Stock Repurchases

A company's buyback of its own shares from the marketplace, reducing the amount of outstanding stock.

Excess Cash

The amount of cash holdings that exceed the normal operational needs of a company.