In Macroland, Potential Output Equals $100 Trillion and the Natural

question 93

Multiple Choice

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then the output gap equals:

• A)−1 percent.
• B)−2 percent.
• C)1 percent.
• D)2 percent.

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Definitions:

Variable Costs

Expenses that fluctuate with the level of production output, such as raw materials and direct labor.

Fixed Costs

Expenses that remain constant in total amount irrespective of fluctuations in the activity level of a business, e.g., insurance premiums.

Composite Unit

A grouping of assets or costs that are combined and treated as a single unit for accounting or valuation purposes.

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and labor.