Starting from Long-Run Equilibrium in the Dynamic Model of Aggregate

question 83

Multiple Choice

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, output immediately decreases as a result of a one-period positive supply shock because:

• A) the central bank raises the nominal and real interest rates in response to the increase in inflation.
• B) the higher prices generate a negative demand shock that reduces output.
• C) the natural level of output falls in response to the increase in inflation.
• D) the central bank increases the target rate of inflation in response to the increase in inflation.

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Definitions:

Note Payable

A written promise to pay a specified amount of money, often bearing interest, at a future date.

Federal Income Tax

A tax levied by the United States Internal Revenue Service on the annual earnings of individuals, corporations, trusts, and other legal entities.

Withholding Allowances

The exemptions claimed by an employee on their W-4 form to determine how much of their income is withheld for taxes.

Accounting Period

A specific time range for which financial statements are prepared, often quarterly or annually, to present the financial status and performance of a company.