Suppose Canada's Economy Is in a Long-Run Equilibrium with Real

question 81

Multiple Choice

Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is an increase in the Canadian-dollar price of all imported raw materials.In the short run,________.In the long run,________.

• A)real GDP and the price level both fall; real GDP is below its original level with a lower price level
• B)real GDP and the price level both rise; real GDP is above its original level with a higher price level
• C)real GDP and the price level both rise; real GDP returns to its original level with a higher price level
• D)real GDP rises and the price level falls; real GDP returns to its original level with a lower price level
• E)real GDP falls and the price level rises; real GDP and the price level return to their original levels

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, indicating how much contributes to covering fixed costs and profit.

Fixed Corporate Costs

Expenses that do not vary with production volume or sales, such as salaries of managerial staff and rent for corporate headquarters.

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume.

Avoidable Expenses

Costs that can be eliminated if a certain decision is made, such as discontinuing a product line.