In the Short Run, a Price Increase in the Goods

question 57

Multiple Choice

In the short run, a price increase in the goods and services market measured by the CPI will:

• A) increase the purchasing power of money.
• B) improve producer profits and, thereby, induce suppliers to expand output.
• C) increase resource prices, lower profits, and lead to a decline in output.
• D) reduce the natural rate of unemployment.

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Definitions:

Factory Overhead Rate

The ratio of total indirect manufacturing costs to a specific basis, such as labor hours or machine hours, used to allocate overhead costs to products.

Direct Labor Costs

Expenses related to employees who physically manufacture a product.

Factory Overhead Cost

Indirect manufacturing costs that are not directly tied to the production of specific goods, including utilities, maintenance, and salaries of supervisors.

Overapplied/Underapplied

Terms used in cost accounting to describe the situation where the allocated indirect costs do not match the actual indirect costs, resulting in a discrepancy at the end of an accounting period.