Assume Equilibrium Real GDP Per Year Is Equal to Full-Employment

question 222

Multiple Choice

Assume equilibrium real GDP per year is equal to full-employment real GDP. If aggregate demand falls, then

• A) the price level will increase in the short run and decrease in the long run.
• B) there will be an expansionary gap.
• C) there will be a recessionary gap.
• D) long-run aggregate supply will eventually decrease too.

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Definitions:

Tethered

To be tied or anchored to a particular point or place, restricting freedom of movement.

Learned Association

A psychological principle where an individual connects two stimuli or a stimulus and a behavior through repeated exposure.

Sensorimotor Stage

The first stage in Piaget's theory of cognitive development, from birth to about 2 years of age, where infants learn about the world through their sensory impressions and motor activities.

Concrete Operational

A stage in Jean Piaget's theory of cognitive development during which children (ages 7-12 approximately) gain a better understanding of mental operations, leading to more logical thoughts about concrete events.