Graphically, a positive real shock causes a shift of the: a) AD curve to the left. b) LRAS curve...

Question:

Graphically, a positive real shock causes a shift of the:

a) AD curve to the left.

b) LRAS curve to the right.

c) AD curve to the right.

d) LRAS curve to the left.

Shocks:

In economics, a shock is also known as an innovation, to a given data generating process. In the business cycle literature, the two types of shocks are positive shocks and negative shocks.

Answer and Explanation: 1

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The answer is c).

A real shock affects real quantities, either demand or supply. A positive shock increases either demand or supply. Hence, a...

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Expansionary Fiscal Policy and Aggregate Demand

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Chapter 13 / Lesson 3
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Learn the meaning of a fiscal and an expansionary fiscal policy in economics. Learn how expansionary and contractionary fiscal policy affect aggregate demand.


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