Suppose an Economy Has an Upward-Sloping Aggregate Supply Curve and a Recessionary

question 37

Multiple Choice

Suppose an economy has an upward-sloping aggregate supply curve and a recessionary GDP gap equal to $50 billion.If aggregate demand increases by a total of $50 billion,

• A)The recessionary GDP gap will be eliminated.
• B)The resulting equilibrium GDP will be lower than full employment GDP because some of the additional spending will drive up prices instead of increasing output.
• C)The resulting equilibrium GDP will be greater than full-employment GDP because of demand-pull inflation.
• D)Cyclical unemployment will increase.

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Definitions:

Direct Labor Hours

The total number of work hours spent by employees who directly manufacture or produce goods.

Predetermined Overhead Rate

An estimate used to allocate overhead costs to products or job orders, calculated before the costs are incurred.

Finished Goods

Items that are finished with the production phase but are still awaiting sale or delivery to consumers.

Cost of Goods Sold

The direct costs attributable to the production of goods sold by a company, including materials and labor costs.