Suppose the Full Employment Level of Real Output (Q) for a Hypothetical

question 220

Multiple Choice

Suppose the full employment level of real output (Q) for a hypothetical economy is $500, the price level (P) initially is 100, and prices and wages are flexible both upward and downward. Refer to the
Accompanying short-run aggregate supply schedules. In the long run, a fall in the price level from
100 to 75 will

• A) decrease real output from $500 to $440.
• B) increase real output from $500 to $620.
• C) change the aggregate supply schedule from (a) to (c) and produce an equilibrium level of real output of $500.
• D) change the aggregate supply schedule from (a) to (b) and produce an equilibrium level of real output of $500.

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Definitions:

Straight-Line Depreciation

Straight-line depreciation is a method that allocates an equal portion of an asset's cost to each year of its useful life for accounting and tax purposes.

Net Present Value

A calculation used to assess the profitability of an investment, considering the time value of money by discounting future cash flows.

Capital Budgeting

The method of arranging and controlling an organization's long-term financial commitments to key projects or assets.

Renovation Expense

Costs incurred during the process of improving or updating a building, facility, or equipment to modern standards or efficiency.