Consider the Basic AD/AS Model

question 93

Multiple Choice

Consider the basic AD/AS model. Suppose that high- school graduates have better computing skills than did graduates in the past, resulting in an increase in average labour productivity. This change will

• A)cause a movement along the AS curve to the right.
• B)shift the AD curve to the right.
• C)shift the AS curve to the left.
• D)shift the AS curve to the right.
• E)shift the AD curve to the left.

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Definitions:

Absorption Costing

A financial recording approach that encompasses all production expenses, such as direct materials, direct labor, and overhead costs, within the price of a product.

Net Operating Income

Income from normal business operations after subtracting operating expenses but before interest and taxes.

Fixed Manufacturing Overhead

Expenses related to manufacturing that remain constant regardless of the level of production, such as building lease payments and equipment depreciation.

Deferred Inventories

Inventory costs that are not expensed in the period they are incurred but are deferred to a future period.