Refer to the diagram and assume the economy initially is in equilibrium at point a. Suppose the aggregate demand declines from AD 1 to AD 2 and the economy moves from a to c. In the mainstream view, the resulting decline in the price level need not shift the short-run aggregate supply curve from AS 1 to AS 2 because:
A. supply creates its own demand.
B. nominal wages are (at least for a time) inflexible downward.
C. firms misperceive the price-level decline as being permanent.
D. deflation reduces the purchasing power of the dollar.
B. nominal wages are (at least for a time) inflexible downward.
You might also like to view...
Expansionary fiscal policy leads to
A) lower exchange rates, increased exports, and increased imports. B) higher exchange rates, decreased exports, and decreased imports. C) lower exchange rates, decreased exports, and decreased imports. D) higher exchange rates, decreased exports, and increased imports.
Use a long-run average cost curve graph to illustrate how diseconomies of scale would not make it beneficial for two companies to go through with a merger
What will be an ideal response?