Suppose the Economy Is at Full Employment and a Booming

question 68

Multiple Choice

Suppose the economy is at full employment and a booming stock market encourages consumption spending to rise dramatically. What would be the MOST likely long-run impact?

• A) The price level would fall, and real GDP would rise.
• B) Real GDP first rises and then falls back to long-run equilibrium.
• C) The price level would not change, but a recession would occur.
• D) The price level will fall, and real GDP would fall.

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Definitions:

Price Variance

The difference between the actual cost of a good or service and its expected cost, often used in budgeting and financial analysis.

Labor Price Variance

The difference between the actual cost of labor and the standard cost expected for that labor, used in budgeting and cost management.

Quantity Variance

Quantity variance refers to the difference between the expected and actual quantity of materials or inputs used in the production process, impacting cost.

Standards

Predetermined benchmarks or norms used for measuring performance and setting expectations in various contexts, including production, quality, and accounting.