Refer to the Figure Above

question 44

Multiple Choice

Refer to the figure above. Suppose the economy is operating in a recession such as point B. If policymakers allow the economy to adjust to the long-run natural rate on its own, people will

• A) reduce their price expectations and the short-run aggregate supply will shift right.
• B) raise their price expectations and aggregate demand will shift left.
• C) raise their price expectations and the short-run aggregate supply will shift left.
• D) reduce their price expectations and aggregate demand will shift right.

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Definitions:

Degree of Operating Leverage

The Degree of Operating Leverage is a measure that assesses the sensitivity of a company's operating income to changes in its sales volume, indicating the percentage change in operating income for a percentage change in sales.

Net Operating Income

A measure of a company's profitability from its regular business operations, deducting operating expenses from gross income.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales revenue, indicating the proportion of fixed to variable costs.

Net Operating Income

The profit a company generates from its operations, before taxes and interest, from its primary business activities.