If Equilibrium GDP Is $1 Trillion Greater Than Full Employment

question 126

Multiple Choice

If equilibrium GDP is $1 trillion greater than full employment GDP,and there is an inflationary gap of $250 billion,the multiplier is

• A)zero.
• B)1.
• C)2.5.
• D)4.
• E)impossible to find.

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Definitions:

Long Run

A time period in economics during which all factors of production and costs are variable, allowing for all adjustments to be made to achieve an equilibrium.

Competitive Increasing-cost Industry

An industry in which the entry of new firms causes the input prices to increase, leading to upward-sloping supply curves for the firms.

Long-run Equilibrium

A state in economics where all factors of production are fully adjusted to the market condition and all economic agents have no incentive to change their behavior.

Consumer Demand

The desire and willingness of consumers to purchase a certain quantity of goods or services at various price points, at a particular time.