Aggregate Supply Shocks Cause the Price Level and Real GDP

question 3

Multiple Choice

Aggregate supply shocks cause the price level and real GDP to change in

• A)the same direction with price changing by more than output.
• B)the same direction and by the same amount.
• C)opposite directions with price changing by less than output.
• D)opposite directions and not necessarily by the same amount.
• E)opposite directions but by the same amount.

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Definitions:

Variable Costs

Costs that change in proportion to the level of output or activity.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like lease payments, wages, and debt repayments.

Total Fixed Costs

The sum of all costs required to produce any amount of a product that does not change with the level of production.

Variable Costs

Costs that vary directly with the level of production or output, such as raw materials and labor.