Compare the effects of an increase in aggregate demand when the price level is fixed versus when it can change
What will be an ideal response?
The above figure shows the effects. An increase in aggregate demand from AD1 to AD2 causes real Gross Domestic Product (GDP) to increase, but the size of the increase is greater for AS1 than for AS2. When the price level can change, some of the impact of the increase in aggregate demand falls on the price level instead of output, whereas all of the impact is on output when the price level is fixed.
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The short-run break-even price
A) is the price at which the firm's current liabilities are paid off. B) is the price at which a firm's total revenues equal total costs. C) occurs at the output at which the firm yields a below normal rate of return. D) occurs at the output at which the firm yields a positive economic profit.
Refer to the information provided in Figure 3.19 below to answer the question(s) that follow.
Figure 3.19Refer to Figure 3.19. The market is initially in equilibrium at Point A. If supply shifts from S1 to S2 and there is an excess demand of 6 cheeseburgers, the price of cheeseburgers will have
A. remained constant at $7.00. B. moved from $7.00 to $5.00. C. remained constant at $5.00. D. moved from $5.00 to $7.00.