Use the Following to Answer Questions

question 140

Multiple Choice

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially in short-run equilibrium at B. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

• A) A stabilization policy would return real GDP to its potential at a price level of P_a while a nonintervention policy would return real GDP to its potential at a price level of P_d.
• B) A stabilization policy would return real GDP to its potential at a price level of P_d while a nonintervention policy would return real GDP to its potential at a price level of P_a.
• C) Both policies would return real GDP to its potential at a price level of P_a.
• D) Both policies would return real GDP to its potential at a price level of P_d.

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Definitions:

Average Cost Formulas

A method used in accounting to calculate the cost of goods sold and ending inventory by averaging the cost of all items available for sale during the period.

Unit Cost

The expense incurred to produce, store, and sell one unit of a product or service.

Unit Cost

The cost to produce, acquire, or purchase one unit of a product or service, calculated by dividing total costs by the number of units produced or acquired.

Inventory

The total amount of goods or materials in stock, which a business holds to ultimately sell for a profit.