If There Is an Inflationary Gap,then a 45-Degree Line Exceeds

question 135

True/False

If there is an inflationary gap,then a 45-degree line exceeds the aggregate expenditure curve at the full-employment level of income.
The 45-degree line exceeds the aggregate expenditure when there is a recessionary gap and spending would be insufficient to purchase all output.

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Definitions:

Long-run Average Total Cost

The cost per unit of output in which all inputs, including capital, are variable, showing economies and diseconomies of scale over time.

Increasing Returns to Scale

A situation in which a proportional increase in all inputs results in a more than proportional increase in output, demonstrating economies of scale.

Law of Diminishing Returns

An economic principle stating that, holding all else constant, as one input variable is increased, there is a point at which the marginal per unit output starts decreasing.