-Refer to Figure 10

question 39

Multiple Choice

-Refer to Figure 10.3.If full-employment GDP is $600 billion and the economy is on AD₁,

• A)A recessionary gap exists,and AD must increase by less than $100 billion to eliminate it.
• B)A recessionary gap exists,and AD must increase by more than $100 billion to eliminate it.
• C)An inflationary gap exists,and AD must increase by $100 billion to eliminate it.
• D)An inflationary gap exists, and AD must increase by more than $100 billion to eliminate it.

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Definitions:

Marginal Cost Curve

A graphical representation showing the change in total cost produced by making one additional unit of a good or service.

Average Variable Cost

The total variable cost of producing goods divided by the quantity of goods produced.

Law of Diminishing Marginal Returns

A rule of economics that asserts when a single production element is expanded and the rest stay unchanged, there will ultimately be a decline in total output after reaching a specific threshold.