Exhibit 16A-1 Policy Alternatives Assume That the Economy Depicted

question 11

Multiple Choice

Exhibit 16A-1 Policy Alternatives Assume that the economy depicted in Panel (b) of Exhibit 16A-1 is in short-run equilibrium where AD₁ equals SRAS₁. Keynesian theory argues:

• A)nominal wages will fall as long as employment remains above the natural level of unemployment.
• B)lower wages will result in a shift from SRAS₁ to SRAS₂.
• C)long-run equilibrium will be established at Y_p and P₁.
• D)government intervention must shift AD₁ rightward to AD₂.

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Definitions:

Incremental Overhead Costs

Additional overhead expenses directly resulting from a specific business decision or activity.

Relevant Costs

Costs that should be considered when making decisions because they will be affected by the decision.

Markup Percentage

The percentage difference between the cost of a good or service and its selling price, indicating the gross profit margin.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.