During an Economic Boom: Understanding the AD-AS Model

The AD-AS Model: Economic Boom Explained

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Question

During an economic boom, the AD-AS model indicates that

Answers

A. both the real interest rate and real wage rates will decline.

B. real interest rate will decline and real wage rates will rise.

C. real interest rate will rise and real wage rates will decline.

D. both the real interest rate and real wage rates will increase.

E. real wage rates will remain constant while the real interest rate will rise.

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Explanations

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A. B. C. D. E.

High demand for resources (like labor) during an economic boom will increase the price of labor (the real wage rate). Similarly high demand for loanable funds during a boom will cause the real interest rate to rise.

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