Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium?
A) the rightward shift of the aggregate demand curve that occurs during a recession
B) the leftward shift of the short-run aggregate supply curve that occurs after a recession
C) the rightward shift of the short-run aggregate supply curve that occurs after a recession
D) the leftward shift of the aggregate demand curve that occurs after a recession
C
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When two goods have negative cross elasticities of demand and positive income elasticities, they are: a. Normal and substitutes
b. Normal and complements. c. Inferior and substitutes. d. Inferior and complements.
Refer to the graph shown. Assume the economy is in short-run equilibrium at point A below potential output. The government opts for an expansionary fiscal policy that shifts the AD curve from AD0 to AD1 in an attempt to pull the economy out of the recession. An economist with a functional finance view, who also recognizes that there will be a certain degree of crowding out, would conclude that the economy will likely end up at point:
A. A. B. B. C. C. D. D.