If a Demand Shock Causes an Economy to Operate at a Point

question 34

Multiple Choice

If a demand shock causes an economy to operate at a point above potential GDP,then

• A) the aggregate supply curve will shift to return the economy to the original point of equilibrium
• B) the economy will correct itself through rising wages and prices
• C) this short-run equilibrium point will become the new long-run equilibrium GDP
• D) the economy will correct itself through falling wage rates and prices
• E) the shock is said to be a negative demand shock

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Definitions:

Feedback Mechanism

A biological process where the end product of an action causes a modification or adjustment, either enhancing it (positive feedback) or inhibiting it (negative feedback) to maintain homeostasis.

Erythrocytes

These are red blood cells, responsible for carrying oxygen throughout the body via the blood.

Thrombocyte

Another term for platelets, which are small, disc-shaped blood cells crucial in blood clotting and preventing excessive bleeding.

Erythrocyte

A red blood cell that is responsible for carrying oxygen and carbon dioxide throughout the body.