A Short-Run Equilibrium with an Output Gap of Zero Implies

question 189

Multiple Choice

A short-run equilibrium with an output gap of zero implies

• A) zero inflation in the near future.
• B) the rate of inflation will remain the same.
• C) the rate of inflation will rise.
• D) the rate of inflation will fall.
• E) firms have no incentive to raise the prices of their goods and services.

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Definitions:

Actual Output

Actual output is the factual quantity of goods or services produced within a specified time frame, representing productivity.

Standard Price

The predetermined cost assigned to materials, labor, or overhead for the purposes of budgeting and variance analysis.

Material Price Variance

The difference between the actual cost of direct materials and the expected (standard) cost, indicating budgetary performance.

Direct Materials

Raw materials that can be directly attributed to the production of goods.