Some Economists Believe That a Positive Aggregate Demand Shock to an Economy

question 354

Multiple Choice

Some economists believe that a positive aggregate demand shock to an economy with large amounts of excess capacity and unemployment does NOT necessarily cause an increase in prices. Economists who adhere to this belief are followers of

• A) classical economics.
• B) Say's laws of economics.
• C) Keynesian economics.
• D) supply-side economics.

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Definitions:

Consumer Surplus

The variance between the aggregate amount consumers intend and can afford to pay for a good or service and the total they actually do pay.

Supply Curve

A supply curve is a graph that shows the quantity of goods that producers are willing to sell at different prices, typically depicting a positive relationship between price and quantity supplied.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period, typically downward sloping.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflective of its sensitivity to price changes.