Given the Expected Price Level, Policies for Reaching Potential GDP

question 113

Multiple Choice

Given the expected price level, policies for reaching potential GDP will work best if the money supply is _____

• A) large, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment.
• B) large enough that prices at potential GDP exceed expectations and firms can afford to hire workers.
• C) small, so that prices at potential GDP fall below expectations and people can afford to buy enough goods to support the natural level of employment.
• D) small, so that prices at potential GDP exceed expectations and firms can afford to hire workers.
• E) exactly the size that makes prices equal to the prices people expected to prevail.

---

Definitions:

Budgeted Costs

Estimated financial plan for expenditures over a specified period.

Direct Labor Hours

This term represents the total time spent by workers directly involved in the manufacturing process.

Flexible Budget Graph

A visual representation that shows the difference between actual and expected performance at various levels of activity.

Direct Labor Hours

The cumulative hours that employees, who are engaged directly in creating products or delivering services, spend on work.