The Three Figures Below Show the Phases of a Disinflation

question 94

Multiple Choice

The three figures below show the phases of a disinflation.In part (i) ,the economy is experiencing a sustained inflation at E₁. FIGURE 29-4 Refer to Figure 29-4,part (ii) ,Phase 2 of the disinflation process.The upward drift of the AS curve will generally continue longer,with rising unemployment and falling output,when

• A)real wages and other factor prices are falling.
• B)the price level is falling as a result of the disinflation.
• C)firms and consumers regard the central bank's disinflation policy as highly credible.
• D)the central bank pursues a contractionary monetary policy even more severe than they had announced.
• E)firms and consumers do not regard the central bank's disinflation policy as credible.

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Definitions:

Overhead Costs

Expenses related to the day-to-day running of a business that cannot be directly attributed to creating a product or service, such as rent, utilities, and insurance.

Averaging Process

A method used in manufacturing or cost calculation where inputs or expenses over a period are averaged to determine a standard cost or value.

Absorption Costing

A cost accounting method that includes all manufacturing costs—direct materials, direct labor, and both fixed and variable manufacturing overhead—in the cost of a product.

Nonmanufacturing Costs

Expenses not directly related to the production of goods, such as selling, general, and administrative expenses.