Suppose a recession occurs as a result of a negative supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would
A) bring real GDP back to potential GDP more quickly but would result in a permanently higher price level.
B) bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly.
C) quickly result in a new, higher level of real GDP and a permanently lower price level.
D) bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.
Answer: A
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All of the following describe trends in U.S. labor markets except:
A. substantial growth in real ages during the last century. B. growing wage inequality in the United States in recent decades. C. a slowdown in real wage growth since the 1970s. D. substantial growth in the level of employment in the United States since 2000.