In Figure 11

question 119

Multiple Choice

In Figure 11.1,assume that Q_F is full-employment output and the level of aggregate spending is represented by AD₁.If AD₁ increases to AD₂,which of the following statements is correct?

• A)Full employment will be reached.
• B)Excess AD and inflation will be the result.
• C)Full employment will not be reached because some of the additional spending results in higher prices rather than higher output.
• D)A lower price level will result.

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Definitions:

Straight-Line Method

A method of calculating depreciation in which an asset's cost is divided evenly over its estimated useful life.

Salvage Value

An asset's predicted market price upon exhausting its useful life.

Depreciation Expense

A financial accounting method used to allocate the cost of a tangible asset over its useful life.

Double-Declining-Balance

An accelerated method of depreciation that doubles the rate at which an asset's book value declines compared to the straight-line method.