In the First Half of 2008, Food and Energy Costs

question 11

Multiple Choice

In the first half of 2008, food and energy costs in the United States increased. At the same time, the financial crisis slowed production. As a result, economists warned that the economy would

• A) suffer an inflationary gap.
• B) see a decrease in aggregate demand and an increase in long-run aggregate supply.
• C) experience stagflation.
• D) see an increase in potential GDP.

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Definitions:

Production Possibilities Frontier

An illustration representing the optimal production capabilities for a pair of items, using specific resources and conditions.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, indicating a rise in the standard of living.

Productive Efficiency

A situation where the economy or an enterprise is producing goods and services at the lowest possible cost.

Maximum Possible Output

Refers to the highest level of production an economy can sustain over a period without increasing inflation, often determined by available resources and technology.