Scenario 33-2 Imagine That in the Current Year the Economy Is in Is

question 77

Multiple Choice

Scenario 33-2
Imagine that in the current year the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.
-Refer to Scenario 33-2. How is the new long-run equilibrium different from the original one?

• A)The price level and real GDP are higher.
• B)The price level and real GDP are lower.
• C)The price level is higher and real GDP is the same.
• D)The price level is the same and real GDP is higher.

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Definitions:

Diminishing Marginal Returns

The principle that as an additional unit of a factor of production is added to a fixed amount of other factors, the increase in output will eventually decrease.

Variable Inputs

Refers to inputs used in production that can be adjusted in the short term to meet changes in output levels, such as labor or raw materials.

Returns To Scale

A concept in economics that describes how a proportionate increase in all inputs affects the level of output.

Variable Cost

A cost that increases when the firm increases its output and decreases when the firm reduces its output.