Refer to the Information Provided in Figure 27

question 29

Multiple Choice

Refer to the information provided in Figure 27.3 below to answer the question(s) that follow. Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Higher oil prices shift the aggregate supply curve to AS₂. If the government decides to counter the effects of higher oil prices by increasing government spending, then the price level will be ________ than P₂ and output will be ________ than Y₂.

• A) greater; greater
• B) greater; less
• C) less; less
• D) less; greater

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Definitions:

Production Function

An equation that describes the relationship between inputs (like labor and capital) and the maximum output that can be produced with those inputs.

Returns to Scale

Describes how a firm's output changes as inputs are increased proportionately.

Decreasing

A process or trend of becoming smaller or less in amount, size, degree, or value.

Lagrange Multipliers

A method used in optimization to find the maximum or minimum of a function subject to constraints.