Suppose the Economy Is Initially in Long-Run Equilibrium

question 147

Multiple Choice

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

• A) A decrease in health insurance premiums paid by firms raises the cost of employing labor
• B) An increase in government transfer payments
• C) An increase in the cost of a key input such as oil
• D) A sharp fall in stock market prices

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Definitions:

Impairment Tests

Assessments to determine if an asset's carrying amount exceeds its recoverable amount, indicating a loss in value.

Fair Value

A measure of the estimated price at which an asset or liability could be traded in a transaction between willing parties, other than in a liquidation sale.

FASB

stands for Financial Accounting Standards Board, an independent organization responsible for establishing accounting and financial reporting standards for companies and nonprofits in the United States.

Orderly Transaction

A financial transaction conducted in an organized manner without urgent pressure from either the buyer or seller, often ensuring fair market values are achieved.