A Rising Price Level in the Short Run May Create

question 186

Multiple Choice

A rising price level in the short run may create an incentive for firms to increase production because

• A)costs of production will increase
• B)total sales revenue will decrease
• C)profits will increase
• D)costs of production will increase faster than total revenue
• E)output prices are generally not fixed by contract whereas resource prices are

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Definitions:

Full Employment

A situation where all available labor resources are being used in the most efficient way possible, typically characterized by very low unemployment rates.

Impact Lag

The delay between the implementation of a policy (such as monetary or fiscal policy) and the observable effects of this policy on the economy.

Fiscal Policy

Government policies regarding taxation and spending that are used to influence economic conditions, including economic growth, inflation, and unemployment.

Budget Deficit

A scenario in which a government spends more than it earns in a particular timeframe, resulting in the need to accumulate debt or borrow money.