-In the Above Figure, If Initial Equilibrium Is at Point

question 8

Multiple Choice

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD1 to AD2 due to an anticipated increase in the money supply, then

• A) the economy will move directly from point A to point C without passing through point B.
• B) the economy will move directly from point A to point B, and will remain at point B in the long run.
• C) the price level will shift to P2 in the short run.
• D) the price level will shift to P2 in the long run.

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Definitions:

Journal Entries

The recording of financial transactions in a company's double-entry accounting system.

Bond Interest

The periodic payment made to bond investors, representing the interest earned on the bond's face value.

Amortization

The process of gradually writing off the initial cost of an asset over its useful life or the repayment of a loan over time through scheduled payments.

Bond Discount

The gap between what a bond is worth (its face value) and the lower amount it is sold for in the market.