Refer to the Graph Above

question 37

Multiple Choice

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an unanticipated decrease in aggregate demand to AD₂, then in the view of new classical economics the economy will:

• A) Self-correct through a shift in AS, which brings output back to Q₁
• B) Self-correct through a shift in AD, which brings output back to Q₁
• C) Need the government to implement expansionary policy in order to bring output back to Q₁
• D) Need the government to implement contractionary policy in order to bring output back to Q₁

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Definitions:

Q1

The first quartile in a data set, marking the value below which 25% of the data points fall.

Q2

The second quartile in a data set, also known as the median, which divides a data set into two equal halves.

Q3

The third quartile in a data set, representing the midpoint between the median and the highest value of the dataset.

Percentile Points

Values that divide a set of observations into 100 equal parts, often used to interpret scores in tests.