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© 2014 Pearson Canada Inc.$24.4 Equilibrium in Aggregate Supply and Demand Analysis
The fact that an economy always returns to the natural rate level of output is known as
____.
A) the excess demand hypothesis
B) the price-adjustment mechanism
C) the self-correcting mechanism
D) the natural rate of unemployment
Answer: C
Diff: 2 Type: MC Page Ref: 584
Skill: Recall
Objective List: 24.3 Differentiate between short-run and long-run equilibria in the context of the
aggregate demand and supply framework
Assuming the economy is starting at the natural rate of output and everything else held
constant, the effect of ____ in aggregate ____ is a rise in both the inflation rate and
output in the short-run, but in the long-run the only effect is a rise in the inflation rate.
A) a decrease; supply
B) a decrease; demand
C) an increase; supply
D) an increase; demand
Answer: D
Diff: 2 Type: MC Page Ref: 584
Skill: Recall
Objective List: 24.3 Differentiate between short-run and long-run equilibria in the context of the
aggregate demand and supply framework
The aggregate demand-aggregate supply framework indicates that the long-run effect of a
____ in the money supply is an increase in ____, everything else held constant.
A) fall; aggregate output
B) fall; the inflation rate
C) rise; aggregate output
D) rise; the inflation rate
Answer: D
Diff: 2 Type: MC Page Ref: 584
Skill: Recall
Objective List: 24.3 Differentiate between short-run and long-run equilibria in the context of the
aggregate demand and supply framework