Consider an Economy That Is Operating at the Intersection of the Short-Run

question 12

Multiple Choice

Consider an economy that is operating at the intersection of the short-run and long run Phillips curves. The level of unemployment is 2.5 per cent while the level of inflation is 4 per cent. At this point, if speculation about oil price hikes increase inflationary expectations in this economy, which of the following must happen?

• A) The level of unemployment will be higher than 2.5 per cent at the new equilibrium.
• B) The short-run Phillips curve will move up and the new level of inflation will be higher than 4
• C) The economy will move up along the short-run Phillips curve, increasing the level of inflation above 4 per cent.
• D) The short-run Phillips curve will move down from its original position.

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Definitions:

Factory Overhead Cost

This rephrases "Factory Overhead" as the total expenses related to the operation of a factory that is not directly tied to a specific product or service.

Factory Burden

Another term for manufacturing overhead or factory overhead.

Managerial Accounting

The process of identifying, measuring, analyzing, and communicating financial information to managers for the pursuit of an organization's goals.

Product Costs

Expenses directly tied to the creation of products, including direct materials, direct labor, and factory overhead.