The Three Figures Below Show the Phases of a Disinflation

question 68

Multiple Choice

The three figures below show the phases of a disinflation. In part i) , the economy is experiencing a sustained inflation at E 1.
FIGURE 29-4
-Refer to Figure 29-4, part iii) . Consider the recovery phase of the disinflation process. The disadvantage of implementing an expansionary monetary policy to shift equilibrium from E3 to E4 is

• A) the likelihood of entering a deflationary phase.
• B) that since expected inflation has been eliminated, real wages will not adjust to any further AD or AS shocks.
• C) a falling price level.
• D) firms and consumers will no longer respond to decreases in interest rates.
• E) the danger of reviving expected inflation, and having to repeat the phases of the disinflation.

Identify the cost-plus approach to product pricing.

Grasp the concepts of capacity utilization and its impact on profitability.

Differentiate between various cost methods in pricing (variable cost, total cost, product cost).

Understand and apply differential analysis in decision-making scenarios.

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