At the Current Level of Output, Suppose the Actual Price

question 1

Multiple Choice

At the current level of output, suppose the actual price level is less than the price level that individuals expect. We know that:

• A) any subsequent increase in the aggregate price level will cause a decrease in the real money supply and a leftward shift in the aggregate demand curve.
• B) the AS curve will tend to shift down over time.
• C) output is currently greater than the natural level of output.
• D) the nominal wage will tend to increase as individuals revise their expectations of the price level.
• E) the interest rate will tend to rise as the economy adjusts to this situation.

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Definitions:

Incremental Analysis

An examination of the additional benefits and costs of certain business decisions.

Fixed Overhead

Regular, unchanged costs incurred by a business in its operation, such as rent, salaries, and utilities, which do not vary with the level of production or sales.

Direct Materials

Raw materials used in the production of goods that are directly associated with the finished product.

Incremental Analysis

The process of identifying the financial data that changes under alternative courses of action.