Suppose an Economy Originally in Long-Run Equilibrium Experiences a Decrease

question 260

Multiple Choice

Suppose an economy originally in long-run equilibrium experiences a decrease in aggregate demand. According to the classical model

• A) real Gross Domestic Product (GDP) will not change but the price level will fall.
• B) real Gross Domestic Product (GDP) will fall, and then the price level will fall also.
• C) the price level will not change but real Gross Domestic Product (GDP) will fall.
• D) real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and services will stay the same.

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Definitions:

Impairment Loss

A reduction in the book value of an asset when its fair market value falls below its carrying amount on the balance sheet, indicating a permanent decline in value.

Accumulated Depreciation

Represents the total depreciation expenses charged against a fixed asset since it was put into use, reflecting its decrease in value over time.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since it was put into use, reducing its book value.

Gain of $2,000

Represents an increase in wealth or resources, typically accounted for in financial statements when an asset is sold for more than its cost.