If the Economy Is Experiencing an Inflationary Output Gap, the Adjustment

question 48

Multiple Choice

If the economy is experiencing an inflationary output gap, the adjustment process operates as follows:

• A)wages rise, unit costs rise, and the AS curve shifts leftward.
• B)wages fall, unit costs fall, and the AS curve shifts rightward.
• C)wages fall, unit costs rise, and the AS curve shifts leftward.
• D)wages fall, unit costs fall, and the AD curve shifts rightward.
• E)wages do not adjust, but the AD curve shifts to the right.

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Definitions:

FIFO

The first-in, first-out accounting method of inventory valuation.

LIFO

The last-in, first-out accounting method of valuing inventories.

Economic Earnings

The real flow of cash that a firm could pay out without impairing its productive capacity.

Liquidity Ratio

A financial metric used to determine a company's ability to pay off its short-term debts with its current assets.