Which of the Following Statements Is Most Accurate

question 66

Multiple Choice

Which of the following statements is most accurate?

• A) Potential output is determined by current output.
• B) When an expansionary gap exists, current output is below potential output.
• C) Current output cannot exceed potential output.
• D) During a recessionary gap, current output is below potential output.

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Definitions:

Fixed Expenses

Expenses that do not change with the level of production or sales within a certain range and period, such as rent, salaries, and insurance.

Break-Even Sales

The amount of sales revenue needed to cover all fixed and variable costs, resulting in no profit or loss.

Variable Production Costs

Costs that fluctuate directly with the level of output, including materials, labor, and other expenses that vary with production volume.

Fixed Cost

Expenses that remain constant in total regardless of changes in the level of production or sales volume, such as rent, salaries, and insurance.