A Demand Shock That Increases Real GDP Above Its Full-Employment

question 174

Multiple Choice

A demand shock that increases real GDP above its full-employment level will,in the long run,

• A) lead to a higher wage rate and an upward shift of the aggregate supply curve
• B) lead to a lower wage rate and a downward shift of the aggregate supply curve
• C) lead to a higher wage rate and a rightward shift of the aggregate demand curve
• D) lead to a lower wage rate and a leftward shift of the aggregate demand curve
• E) cause no further shifts in the aggregate supply or aggregate demand curve

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Definitions:

Allowances

Amounts set aside for adjustments or reductions in the value of accounts or inventories, often for potential bad debts or depreciation.

Withheld

Refers to amounts deducted from an employee's wages or payments, often pertaining to taxes or other legal obligations, not immediately paid to the employee.

Interstate Commerce

A test that is applied to determine whether an employer must follow the rules of the Fair Labor Standards Act. If an employer communicates or does business with another business in some other state, it is usually considered to be involved in interstate commerce.

FICA

FICA refers to the Federal Insurance Contributions Act, which is a U.S. law that requires a payroll tax to fund Social Security and Medicare programs.