Suppose the Economy Is Initially in Long-Run Equilibrium

question 102

Multiple Choice

Suppose the economy is initially in long-run equilibrium.After an increase in aggregate demand, which of the following describes the state of the economy in the long run?  

• A) Prices are higher, and output is higher. 
• B) Prices are lower, and output is lower. 
• C) Prices are higher, and output is the same. 
• D) Prices are the same, and output is lower.

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Definitions:

Operating Leverage

A measure of how sensitive net operating income is to a given percentage change in unit sales.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed costs in a company's cost structure.

Break-Even Point

The level of production or sales at which total revenues equal total costs, resulting in no profit or loss.

R-Squared

A statistical measure representing the proportion of the variance for a dependent variable that's explained by an independent variable or variables in a regression model.