Multiple Choice
the economy can react to demand shocks with price changes as well as with output and employment changes.
the economy can react to demand shocks with price changes but not output and employment changes.
we should expect prices for all goods to increase.
we should use the aggregate expenditures model to analyze the economy.
1 answer
The correct answer is:
the economy can react to demand shocks with price changes as well as with output and employment changes.
As prices become more flexible over time, the economy can adjust to demand shocks not only by changing the level of output and employment but also through alterations in prices.
