If Potential Output Equals 4,000 and Short-Run Equilibrium Output Equals

question 101

Multiple Choice

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ________ gap and the Federal Reserve must ________ real interest rates in order to close the gap.

• A)recessionary; raise
• B)recessionary; reduce
• C)recessionary; not change
• D)expansionary; raise

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Definitions:

Direct Labour

The cost associated with employees who are directly involved in the production process.

Standard Hours

The amount of labor time that is expected to be spent on a particular task or to produce a specific quantity of goods under normal conditions.

General Ledger

A comprehensive record of all financial transactions over the life of a company.

Direct Labour Time

The actual time workers spend on the production floor directly working on products or services.