An Increase in Aggregate Demand Will Have a Smaller Long-Run

question 7

Multiple Choice

An increase in aggregate demand will have a smaller long-run effect on real GDP if the:

• A)aggregate demand curve is flat.
• B)short-run aggregate supply curve is horizontal.
• C)economy is well below potential output.
• D)economy is already at potential output.
• E)aggregate demand curve is fairly steep.

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Definitions:

Variable Costing

An accounting approach where only variable production costs are included in product costs, with fixed overhead expenses treated as period costs.

Operating Income

Income generated from normal business operations, excluding costs and expenses.

Manufacturing Margin

The difference between the cost of production and the selling price of manufactured goods.

Contribution Margin

The amount of revenue from sales that exceeds variable costs, contributing to covering fixed costs and generating profit.