A Favorable Supply Shock Causes the Price Level to

question 25

Multiple Choice

A favorable supply shock causes the price level to

• A)rise.To counter this a central bank would increase the money supply.
• B)rise.To counter this a central bank would decrease the money supply.
• C)fall.To counter this a central bank would increase the money supply.
• D)fall.To counter this a central bank would decrease the money supply.

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Definitions:

Average Total Cost Curve

A graph that shows a firm's per-unit cost (both fixed and variable) at various levels of output.

Upward-sloping

Describes a curve on a graph that moves higher as it goes from left to right, often used to illustrate the relationship between price and supplied quantity in supply curves.

Short-run Supply Curve

A graphical representation showing the quantity of goods that producers are willing to supply at various prices over a short period, where at least one input is fixed.

Perfectly Competitive Market

A theoretical market structure characterized by an infinite number of small firms, homogeneous products, perfect information, and ease of entry and exit.