If the Actual Price Level Exceeds the Expected Price Level

question 11

Multiple Choice

If the actual price level exceeds the expected price level reflected in long-term contracts,

• A)firms will find production more profitable than they had expected and will increase the quantity of output supplied
• B)firms will find production less profitable than they had expected and will decrease the quantity of output supplied
• C)firms will find production more profitable than they had expected and will decrease the quantity of output supplied
• D)resource owners,because they are making a lower profit than they had expected,will decrease the quantity of output supplied
• E)unemployment will increase

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Definitions:

Disposable Income

Net financial assets for households dedicated to spending and saving, subsequent to income tax reductions.

Credit Availability

The ease with which individuals and businesses can obtain loans and other forms of credit from financial institutions.

Liquid Assets

Assets that can be quickly converted into cash with little impact on their value.

Consumption Rate

The proportion of income or resources that is spent on consumption rather than saving.