Which of the Following Best Describes How an Economy Overcomes

question 111

Multiple Choice

Which of the following best describes how an economy overcomes an expansionary gap in the long run if the government does NOT intervene?  

• A) In the long run, this gap will be closed by an increase in aggregate demand. 
• B) In the long run, this gap will close when resource suppliers negotiate lower resource payments. 
• C) In the long run, this gap will close when the short-run aggregate supply curve shifts rightward. 
• D) In the long run, this gap will close when resource suppliers negotiate higher resource payments.

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Definitions:

IRR Cross-over

A concept where two projects have the same initial investment but differing cash flows leading to points at which their internal rates of return intersect.

NPV

Net Present Value is a financial metric that calculates the present value of all net cash flows (positive and negative) from an investment, discounted back at the investor's required rate of return.

Required Return

The minimum expected return an investor demands for a particular investment, reflecting the investment's risk.

NPV

An alternative measure for Net Present Value, reflecting the difference in the present value of cash inflows and outflows over a period of time.