A Deflationary Gap Occurs Because

question 17

Multiple Choice

A deflationary gap occurs because

• A)governments set full employment output at too high a level.
• B)prices in the economy are too low to ensure that all resources are fully utilized in the economy.
• C)the level of expenditure in an economy is less than that needed to maintain full employment output.
• D)planned spending turns out to equal actual spending above full employment output.
• E)there are not enough resources in the economy to meet consumption requirements.

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Definitions:

Cost Driver

An element that leads to a variation in the expense associated with an action.

Semivariable Cost

Costs that have both fixed and variable components, changing in response to activity level but not directly proportional to it.

Variable Costs

Costs that change in proportion to the level of goods or services produced, including costs for materials and labor directly involved in production.

Total Costs

The sum of all expenses incurred in the production of goods or services, including fixed and variable costs.