The Table Below Shows Data for Five Economies of Similar

question 53

Multiple Choice

The table below shows data for five economies of similar size. Real GDP is measured in billions of dollars. Assume that potential output for each economy is $340 billion. TABLE 24-1
-Suppose the following conditions are present in the economy:
- firms are increasing output to meet strong demand for their goods
- workers are able to demand higher wages as firms try to bid workers away from other firms
Which of the following statements describes the adjustment that will happen in the AD/AS macro model?

• A) There is an inflationary output gap; aggregate demand will continue to increase, causing the AD curve to shift to the right. The price level will rise until equilibrium is restored at Y*.
• B) The economy is in equilibrium at Y*, but wages are rising. The AS curve will shift to the left until a new equilibrium is reached at a higher price level.
• C) There is a recessionary output gap; wages and other factor prices will rise; the AS curve will shift to the left until equilibrium is restored at Y*.
• D) There is an inflationary output gap; wages and other factor prices will rise; the AS curve will shift to the left until equilibrium is restored at Y*.
• E) There is a recessionary output gap; aggregate demand will rise, causing the AD curve to shift to the right until equilibrium is restored at Y*.

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Definitions:

Double-Declining Balance

A method of accelerated depreciation which doubles the normal depreciation rate, reducing the asset's book value more quickly in its early years.

Salvage Value

The estimated residual value of an asset at the end of its useful life.

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life.

Salvage Value

The estimated resale value of an asset at the end of its useful life, often considered during depreciation calculations.