Suppose the Economy's Short-Run Equilibrium Is at a Point to the Right

question 86

Multiple Choice

Suppose the economy's short-run equilibrium is at a point to the right of Natural Real GDP.Which of the following statements is true?

• A) The economy is in an inflationary gap.
• B) The economy is in a recessionary gap.
• C) The economy is in long-run equilibrium.
• D) This situation is actually impossible.

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Definitions:

Total Cost

The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Relevant Costs

Costs directly related to a specific decision, which will change as a result of that decision.

Average Cost

The total cost of production divided by the number of goods produced, representing the cost per unit of output.

Marginal Cost

The financial outlay for creating one further unit of a good or service.