Suppose an Economy Has an Upward-Sloping AS Curve and an Inflationary

question 38

Multiple Choice

Suppose an economy has an upward-sloping AS curve and an inflationary gap equal to $10 billion.If AD shifts to the left by $10 billion,

• A)Real output will fall by less than $10 billion.
• B)Real output will fall by $10 billion.
• C)The inflationary gap will be eliminated.
• D)A recessionary gap will be created.

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Definitions:

Financial Leverage

The use of borrowed funds to amplify return on investment.

Current Assets

Assets expected to be converted into cash, sold, or consumed within a year, including cash, marketable securities, receivables, and inventory.

Capital Intensity Ratio

The Capital Intensity Ratio is a financial metric that measures the amount of investment in capital assets required to generate one dollar of revenue.

Total Asset Turnover Ratio

A financial metric used to assess a company's efficiency in using its assets to generate sales or revenue.