If We Observe an Economy Adjusting to Potential GDP as Prices

question 40

Multiple Choice

If we observe an economy adjusting to potential GDP as prices fall and real output increases,we can conclude that _____.

• A)the economy was experiencing an expansionary gap
• B)there is a labor surplus
• C)the economy was experiencing a recessionary gap
• D)self-correction is not the process that is occurring
• E)there are widespread labor shortages

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Definitions:

Supply Function

Represents the relationship between the quantity of a good that producers are willing to sell and the price of the good.

Quantity Supplied

The amount of a particular good or service that suppliers are willing and able to provide at a given price during a certain period.

Demand Function

A mathematical expression showing the relationship between the quantity demanded of a good and its price, holding other factors constant.

Supply Function

A numerical model illustrating how the amount of a product provided is related to its cost.