ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The recessionary gap will create upward pressure on prices, shifting the aggregate demand curve to the left.
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The existence of cyclical unemployment will increase consumption spending and increase real output.
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Full-employment output will fall to equal the short-run equilibrium real output.
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Nominal wages will fall, shifting the short-run aggregate supply curve to the right.
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Input prices will increase as firms compete for labor and capital.
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Detailed explanation-1: -Equilibrium Levels of Price and Output in the Short Run The first reduces short-run aggregate supply; the second increases aggregate demand. Both events change equilibrium real GDP and the price level in the short run.
Detailed explanation-2: -If current real GDP is less than full employment output, an economy is in a recession.
Detailed explanation-3: -If an economy is in short-run equilibrium such that the level of output is greater than the potential output, then this means that: after some time, nominal wages will rise.
Detailed explanation-4: -If an economy is operating at an output level below its potential output level, holding everything else constant, one would expect in the long run: nominal wages to fall.