search
arrow-left Previous
Next arrow-right
Q: Which of the following assumptions is made to determine the level of aggregate demand for final goods in the economy? I. In the short run, we assume a fixed final commodity price and a fixed interest rate. II. The entire supply is considered to be perfectly elastic
  • A. only II
  • B. only I
  • C. neither I nor II
  • D. Both I and II
Correct Answer: Option D - In the short run, we assume a fixed final commodity price and a fixed interest rate. In the short run, we assume that capital is a fixed input and labor is a variable input, so the firm can increase output only by increasing the amount of labor it uses. The entire supply is considered to be perfectly elastic. This assumptions is made to determine the level of aggregate demand for final goods in economy.
D. In the short run, we assume a fixed final commodity price and a fixed interest rate. In the short run, we assume that capital is a fixed input and labor is a variable input, so the firm can increase output only by increasing the amount of labor it uses. The entire supply is considered to be perfectly elastic. This assumptions is made to determine the level of aggregate demand for final goods in economy.

Explanations:

In the short run, we assume a fixed final commodity price and a fixed interest rate. In the short run, we assume that capital is a fixed input and labor is a variable input, so the firm can increase output only by increasing the amount of labor it uses. The entire supply is considered to be perfectly elastic. This assumptions is made to determine the level of aggregate demand for final goods in economy.