Use the Following to Answer Questions

question 4

Multiple Choice

Use the following to answer questions .
Exhibit: The Aggregate Demand/Aggregate Supply Model 2
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) Which of the following statements is true?

• A) The economy depicted in the figure experiences an inflationary gap = Y₂ -Y_p.
• B) The economy depicted in the figure experiences an inflationary gap = Y₁ -Y_p.
• C) The economy depicted in the figure experiences an inflationary gap = Y₁-Y₂.
• D) The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead, representing the expenses to convert raw materials into finished products.

Work in Process Inventory

Inventory that includes goods that are in the production process but have not yet been completed or transferred to finished goods.

Process Cost System

An accounting system used to accumulate costs in industries where a homogeneous product is produced on a continuous basis.

Work in Process

Inventory category for items that are currently being produced or in the process of being transformed into finished goods.