Understanding Aggregate Supply and Demand

What happens to the economy when there is an increase in aggregate demand?

• The economy remains unchanged.

• The economy moves from short run to long run equilibrium.

• The economy experiences a recessionary gap.

• The economy moves from long run to short run equilibrium.

How does an inflationary gap affect wages in the long run?

• Wages increase, causing aggregate supply to decrease.

• Wages have no effect on aggregate supply.

• Wages remain constant, keeping aggregate supply stable.

• Wages decrease, leading to an increase in aggregate supply.

What is the result of higher wages on aggregate supply?

• Aggregate supply shifts to the left.

• Aggregate supply becomes more elastic.

• Aggregate supply shifts to the right.

• Aggregate supply remains unchanged.

In a recessionary gap, what is the classical economists' view on government intervention?

• They suggest increasing taxes to reduce demand.

• They advocate for immediate wage cuts.

• They believe the market will self-correct without intervention.

• They support government spending to boost demand.

According to Keynesian economists, what should be done during high unemployment?

• Allow the market to self-correct.

• Focus on reducing inflation.

• Wait for wages to naturally decrease.

• Increase aggregate demand through government intervention.