Refer to Figure 4-6. What area represents producer surplus at P2?

The key disadvantage of the kinked-demand model is that it:

A) explains why firms may collude, but it does not explain how they interact. B) does not explain why prices may be rigid in an oligopoly. C) requires the assumptions of perfect competition. D) only holds under price leadership.

For those who favor an active approach, public policy changes are necessary to cure a recessionary gap because: a. the short-run aggregate supply curve will otherwise shift quickly to the right

b. prices and wages are flexible downward but not upward. c. the required decrease in output can be achieved only by shifting the aggregate demand curve. d. real wages must fall in order to increase aggregate supply in the economy. e. falling money wages will cause the AD curve to shift leftward unless policy counters this movement.