If a Recessionary Gap Is Cured by Increasing Aggregate Demand

question 187

Multiple Choice

If a recessionary gap is cured by increasing aggregate demand,

• A)both c and e are correct
• B)both d and e are correct
• C)real wages fall because prices rise
• D)prices rise causing real wages to increase
• E)money wages decrease as prices decrease

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Definitions:

Monetarism

A school of economic thought that emphasizes the role of governments in controlling the amount of money in circulation.

Classical Economics

A school of economic thought that emphasizes the role of free markets in regulating economic activity, and the importance of limiting government intervention.

Velocity of Circulation

The rate at which money is exchanged in an economy, representing the number of times a unit of currency is used to purchase goods and services within a given time period.

Classical Economist

An economist who believes in economic theories that emphasize free markets, minimal government intervention, and the importance of self-regulating business cycles.