The correct option depicting the impact on aggregate
Answer to Problem 5MCQ
Option e is correct.
Explanation of Solution
Explanation for the correct option:
e.
As the government pursues an expansionary policy, there will be an increase in aggregate demand and no change in the short-run aggregate supply. This is because, due to expansionary policy, there will be an increase in the demand but to compensate for the demand, the economy cannot immediately uplift it to produce more goods as resources are not available immediately. Therefore, option e is the correct answer.
Explanation for incorrect options:
a.
The government pursued an expansionary policy to deal with the existing recession, which will increase the demand and supply will remain the same. Therefore, option a is incorrect
b.
Short-term aggregate supply will remain unchanged as resources are limited. Therefore, option b is incorrect.
c.
There will be an increase in demand rather than a decrease if the expansionary policy is pursued. Therefore, option c is incorrect.
d.
Demand will increase but supply in the short run will not be changed during the recession. Therefore, option d is incorrect.
International trade: International trade is an exchange of goods and services across nations. This is due to globalization and
Chapter 45 Solutions
Krugman's Economics For The Ap® Course
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