Based on the Given Figure, the Economy Is Initially in Long-Run

question 141

Multiple Choice

Based on the given figure, the economy is initially in long-run equilibrium at point A. If there is a favorable supply shock that increases potential output and shifts the long-run aggregate supply curve from LRAS to LRAS', then there is initially ________ gap and the short-run aggregate supply curve will ________.

• A)an expansionary; eventually shift to SRAS'
• B)an expansionary; eventually shift to SRAS"
• C)a recessionary; eventually shift to SRAS"
• D)a recessionary; eventually shift to SRAS'

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Definitions:

Direct Labor Costs

The wages paid to workers who are directly involved in the production of goods or the provision of services, excluding the cost of materials and overhead.

Materials Price Variance

The difference between the actual cost of materials used in production and the standard cost expected for those materials.

Raw Materials

These are the base ingredients or components that companies use in the production of goods.

Materials Price Variance

The difference between the actual cost of materials used in production and the standard cost of those materials.