Refer to Figure 1 Below

question 24

Multiple Choice

Refer to Figure 1 below.If the vertical distance labelled Z represents a deflationary gap then which of the following statements is true? Figure 1

• A)Y₂ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-
• M)₂ to C+I+G+(X-
• M)₁ in order to increase output and employment.
• B)Y₁ represents the full employment level of output and total expenditure must be reduced from C+I+G+(X-
• M)₂ to C+I+G+(X-
• M)₁ in order to increase output and employment.
• C)Y₂ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-
• M)₁ to C+I+G+(X-
• M)₂ in order to increase output and employment.
• D)Y₁ represents the full employment level of output and total expenditure must be increased from C+I+G+(X-
• M)₁ to C+I+G+(X-
• M)₂ in order to increase output and employment.

---

Definitions:

Economies of Scale

Reductions in the average cost of a product in the long run, resulting from increased production and operational efficiencies.

Learning Curve

The concept that describes how new skills or knowledge can be acquired more efficiently over time, leading to decreased costs and increased productivity.

Long-run Average Cost

The average cost per unit of output over time when all inputs, including capital, are variable, showing economies or diseconomies of scale.

Inflation Adjusted Dollars

A monetary measurement adjusted for changes in the price level over time, reflecting the real value of currency.