In Practice, It Is Difficult to Keep Inflation and Output

question 14

Multiple Choice

In practice, it is difficult to keep inflation and output from fluctuating when aggregate expenditures change because:

• A) it takes time for policymakers to recognize that shifts have occurred.
• B) changes in interest rates do not have an immediate impact on the economy.
• C) changes in consumer or business confidence can be very difficult to recognize as they are occurring.
• D) all of the answers given are correct.

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Definitions:

Economic Profits

The surplus remaining after total costs are subtracted from total revenue, taking into account both explicit and implicit costs.

Industry Supply

The total output of goods or services that firms in a specific industry are willing and able to sell at various price levels.

Decreasing-cost Industry

An industry where average costs of production decrease as the scale of output increases.

Long-run Equilibrium Price

The price at which the quantity of a good demanded equals the quantity supplied, with all adjustments made for factors affecting supply or demand over time.