The Diagram Below Shows Alternate Paths for Two Hypothetical Economies,each

question 18

Multiple Choice

The diagram below shows alternate paths for two hypothetical economies,each starting with GDP of $1 billion.Assume that Area 1 is equal to Area 2. FIGURE 25-1 Refer to Figure 25-1.Which of the following statements about Economies A and B is correct?

• A)Economy A will sustain higher material living standards than Economy B in the long run.
• B)Economies A and B will have equal material living standards beginning at Year 0.
• C)Economy B will sustain higher material living standards than Economy A in the long run.
• D)Economies A and B will have equal material living standards beginning at Year X.
• E)Economies A and B will have equal material living standards beginning at Year Y.

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Definitions:

Incentive Programs

Schemes designed to motivate and reward desired behaviors or performance from individuals or groups.

State of Nature

A term used in decision theory referring to the actual but possibly unknown status of the world, which affects the outcomes of decisions.

Opportunity Loss

The cost of the next best alternative foregone as a result of making a decision.

Actual Profit

The realised gain from business operations or investments, after all costs and expenses have been deducted.