Exhibit 16-2 -According to Those Who Favor a Passive Approach to Policy,how

question 20

Multiple Choice

Exhibit 16-2
-According to those who favor a passive approach to policy,how will the economy shown in Exhibit 16-2 attain equilibrium at potential output?

• A) The SRAS curve will shift to the left.
• B) The SRAS curve will shift to the right.
• C) Either the money supply or government spending should be increased.
• D) Either the money supply or government spending should be decreased.
• E) Aggregate demand should be decreased.

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Definitions:

Conversion Cost

The sum of direct labor and manufacturing overhead costs, representing the costs needed to convert raw materials into finished goods.

Direct Materials

These are the raw materials that are directly incorporated into a finished product.

Prime Cost

The combined direct costs of raw material and labor that are directly associated with the production of a product.

Discretionary Fixed Costs

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.