Suppose Firms Are Currently Producing Output at a Level Beyond

question 106

Multiple Choice

Suppose firms are currently producing output at a level beyond their normal capacity. In this situation, the AS curve will be relatively and a positive AD shock will result in .

• A)steep; a decrease in the price level and a very small decrease in real GDP.
• B)flat; a very small increase in prices but a large increase in real GDP.
• C)steep; an increase in the price level with a small increase in real GDP.
• D)flat; an equal increase in the price level and in real GDP.
• E)flat; a very small decrease in the price level and a decrease in real GDP.

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Definitions:

Unemployment Rate

The segment of individuals in the labor force who are not in employment but are looking for jobs actively.

Opportunity Cost

The value of the best alternative forgone when a decision is made to pursue a particular action or resource allocation.

Capital Goods

Long-lasting goods that are used in the production of other goods or services, such as machinery, buildings, and equipment.

Consumer Goods

Goods purchased and used by consumers rather than manufacturers for producing other goods.