When a Financial Friction Is Added to the Short-Run Model

question 104

Multiple Choice

When a financial friction is added to the short-run model it:

• A) shifts the MP curve up.
• B) shifts the IS curve down.
• C) shifts the AS curve down.
• D) is represented by a movement along the MP curve.
• E) is represented by a movement along the IS curve.

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Definitions:

Cartel Agreement

An agreement among competing firms to control prices or output in a particular market, often resulting in higher prices.

Many Firms

A market condition where there is a large number of sellers, promoting competition and diversity of products.

Different Costs

Various expenditures a business incurs, such as fixed, variable, direct, and indirect costs.

Barriers to Entry

Factors that make it difficult for new firms to enter a market, such as high start-up costs, stringent regulations, or strong incumbent firms.