-Refer to the Above Figure

question 71

Multiple Choice

-Refer to the above figure. If the economy is at E and the government wants to increase aggregate demand to AD₃, but the increase in spending only shifts the aggregate demand curve to AD₂, then

• A)complete crowding out has occurred.
• B)some crowding out has occurred.
• C)the increased borrowing caused interest rates to fall.
• D)the short-run aggregate supply curve is steeper than the figure indicates.

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Definitions:

Operating Income

Operating income, also known as operating profit or Earnings Before Interest and Taxes (EBIT), is a measure of the profit a company generates from its operations, before subtracting interest expenses and taxes.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent and salaries.

Variable Cost

Costs that vary directly with the level of production or the volume of output.

Operating Leverage (DOL)

A financial metric indicating the proportion of fixed versus variable costs a company has, which affects its earnings before interest and taxes (EBIT) for every percentage change in sales.