The Adverse Impact of a Negative Aggregate Demand Shock Is

question 20

Multiple Choice

The adverse impact of a negative aggregate demand shock is reduced when the government does not target the deficit because

• A) targeting the deficit causes further negative aggregate demand shocks.
• B) negative aggregate demand shocks do not affect the deficit.
• C) the economy is always producing potential output.
• D) not targeting the deficit causes positive aggregate demand shocks.

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Definitions:

Complements

Items or services used together, where the use of one increases the demand for the other.

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.