Assume a Price Floor Is Imposed at the Current Equilibrium

question 14

Multiple Choice

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

• A)​a surplus of lettuce will be created.
• B)​a shortage of lettuce will be created.
• C)​the quantity of lettuce traded remains the same.
• D)​the quantity of lettuce supplied will increase.

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Definitions:

Aggregate Demand Curve

A graph representing the total demand for goods and services within an economy at various price levels, typically downward sloping, indicating an inverse relationship between the price level and the quantity of aggregate demand.

Government Purchases

Spending by the government on goods and services that are directly consumed or invested in by the government sector.

Short-Run Aggregate Supply

The total production of goods and services in an economy at different price levels in a short time frame, assuming that some production costs remain fixed.

Spending Multiplier

The ratio of a change in national income to a change in government spending that causes it, indicating the impact of fiscal policy on the economy.