A Short-Run Equilibrium with a Recessionary Gap Implies That

question 181

Multiple Choice

A short-run equilibrium with a recessionary gap implies that

• A) firms will raise the prices of their goods and services more than needed to fully cover their increases in costs.
• B) firms will raise the prices of their goods and services as much as needed to fully cover their increases in costs.
• C) there will be negative inflation.
• D) firms have incentives to lower the relative prices of their goods and services.
• E) firms have incentives to raise the relative prices of their goods and services.

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Definitions:

Direct Investment

Describes the process of acquiring a controlling interest in foreign assets, such as a company or property, with the aim of managing the investment directly.

Japanese Company

A business entity registered and operating in Japan, often characterized by its management style and hierarchical structure.

Software Company

A business entity that specializes in developing, distributing, and maintaining software applications or systems.

Financial Account

A component of the balance of payments that records transactions involving financial assets and liabilities between residents of one country and the rest of the world.