Figure 7-6 -Refer to Figure 7-6. Suppose the Economy Is Initially at Is

question 15

Multiple Choice

Figure 7-6
-Refer to Figure 7-6. Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD₂. As a result,

• A) the economy is not in equilibrium because it operates with an output gap.
• B) the economy is in short-run equilibrium and it operates with an inflationary gap.
• C) the economy is in short-run equilibrium and it operates with a recessionary gap.
• D) the economy is not in equilibrium because the unemployment rate is not equal to the natural rate of unemployment.

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Definitions:

Fixed Component

The portion of total costs that remains constant regardless of the level of activity or output.

Variable Overhead Rate

This refers to the rate at which indirect, variable costs accumulate over a given period, often linked to production or activity levels.

Efficiency Variance

A measure used in cost accounting to assess the difference between actual and expected usage of resources, often related to time or cost of labor.

Budget Variance

The difference between the budgeted or planned amount and the actual amount spent or received.