Use the Following to Answer Questions

question 23

Multiple Choice

Use the following to answer questions :
Figure: Classical Model of the Price Level
-(Figure: Classical Model of the Price Level) Look at the figure Classical Model of the Price Level. If the central bank increases the money supply such that aggregate demand shifts from AD₁ to AD₂, according to this classical model, the SRAS will:

• A)not change, since in the classical model the SRAS and LRAS are both vertical at potential output.
• B)decrease from SRAS₁ to SRAS₂.
• C)increase from SRAS₂ to SRAS₁.
• D)increase from SRAS₁ to SRAS₂.

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Definitions:

Option To Wait

The choice to delay an investment or decision, which might carry value by allowing more information to be gathered, potentially leading to a better informed decision.

Discounted Cash Flow

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.

Projected Cash Flows

Estimates of the amount of money expected to move in and out of a business over a specified period in the future.

Capital Rationing

The process of selecting the most profitable projects to invest in when capital is limited.