During an Economic Boom, the Rate of Inflation

question 14

Multiple Choice

During an economic boom, the rate of inflation

• A)and the percentage deviation of real GDP from potential GDP are both increasing.
• B)and the percentage deviation of real GDP from potential GDP are both decreasing.
• C)is increasing, and the percentage deviation of real GDP from potential GDP is decreasing.
• D)is decreasing, and the percentage deviation of real GDP from potential GDP is increasing.
• E)is constant, and the percentage deviation of real GDP from potential GDP is increasing.

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Definitions:

Operating Income

The income a business receives after subtracting operating costs from its gross profit.

Fixed Costs

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance premiums.

Variable Costs

Costs that change in proportion to the level of production or business activity.

Unit Contribution Margin

The amount each unit sold contributes to fixed costs and profit after variable costs are subtracted.