Suppose That Potential GDP Were to Climb by 1 Percent

question 29

Multiple Choice

Suppose that potential GDP were to climb by 1 percent from an initial level of $10,000 during a year in which aggregate demand changed from Y = 11,000 - 10P to Y = 11,100 - 10P. The rate of inflation in the flexible price long-run growth model is

• A) 10 percent.
• B) 5 percent.
• C) 0 percent.
• D) -5 percent.
• E) 15 percent.

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Definitions:

Increasing Cost Industry

An industry in which production costs rise as output increases, often due to factors like limited resources or increased demand for inputs.

Price-taker Firm

A company in a market where the individual firm has no control over the price of its product and must accept the prevailing market price.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one additional unit of a good changes as the level of production is varied.

Supply Curve

A graph showing the relationship between the price of a good and the quantity of the good that suppliers are willing to offer for sale.