When the Economy Is Creating Less Output Than Its Potential

question 30

Multiple Choice

When the economy is creating less output than its potential, it means:

• A) some resources are unemployed.
• B) the economy is expanding.
• C) contractionary policy needs to be enacted.
• D) the government will reduce its spending.

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Definitions:

Specific Firm

A distinct company or business entity recognized for its unique product, service, or brand identity.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for significant influence over prices.

Long-Run

A time period in which all factors of production and costs are variable, allowing for the adjustment of all inputs.

Normal Profit

A rephrased definition: The minimum earning potential that keeps a firm operating in a competitive market, synonymous with break-even profitability.