In the Short-Run, an Increase in the Average Price Level

question 69

Multiple Choice

In the short-run, an increase in the average price level in the economy will cause:

• A) demand for a good to increase but total production to decline.
• B) profits to rise and thus, total production to increase.
• C) interest rates to fall and thus, total production to decline.
• D) input costs to fall and thus, total production to rise.
• E) input costs to fall and thus, total production to decline.

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Definitions:

Work in Process Inventory

Work in process inventory consists of materials, labor, and overhead costs for products that are in the production process but have not yet been completed.

Overapplied Overhead

A situation where the allocated or estimated manufacturing overhead costs exceed the actual overhead costs incurred.

Work in Process

Refers to the total cost of unfinished goods in the manufacturing process at any given time.

Estimated Overhead Costs

The anticipated costs for overhead activities in a business, including utilities, rent, and management salaries, not directly tied to product production.