If Persistent Inflation Was Due to Declines in Long-Run Aggregate

question 231

Multiple Choice

If persistent inflation was due to declines in long-run aggregate supply, what pattern would be observed?

• A) Increases in the price level would occur simultaneously with decreases in real GDP.
• B) Increases in the price level would occur simultaneously with increases in real GDP.
• C) Only prices of goods would increase; prices of services would remain constant.
• D) Only prices of services would increase; prices of goods would remain constant.

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Definitions:

Expected Utility

A theory in economics that calculates the anticipated utility of an action, factoring in all possible outcomes weighted by their probabilities.

Risk Averse

Having the tendency to prefer outcomes with lower uncertainty and potential for loss, even if they may offer lesser but more certain rewards.

Expected Utility

A theory in economics that quantifies how choices are made with uncertainty, aimed at maximizing the satisfaction or benefit.

Risk-neutral

A characteristic of individuals or entities that exhibit indifference between choices with differing levels of risk, focusing solely on expected outcomes.