Figure 26-12 -Refer to Figure 26-12. in the Dynamic AD-AS Model, the AD-AS

question 206

Multiple Choice

Figure 26-12
-Refer to Figure 26-12. In the dynamic AD-AS model, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

• A) unemployment rates higher than what would occur if no policy had been pursued.
• B) inflation rates higher than what would occur if no policy had been pursued.
• C) potential real GDP levels lower than what would occur if no policy had been pursued.
• D) real GDP levels higher than what would occur if no policy had been pursued.

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Definitions:

Accounts Receivable

Amounts owed to a company by customers for goods or services that have been delivered or used but not yet paid for.

Accrual Basis

An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur.

Cash Basis

An accounting method where revenue is recorded when cash is received, and expenses are recorded when cash is paid out, without regard to when the transactions actually occur.

Indirect Method

A technique used in cash flow statement preparation that adjusts net income for changes in non-cash accounts to compute net cash provided by operating activities.