Use the Following to Answer Question 177

question 74

Multiple Choice

Use the following to answer question 177:
Figure: Short-Run and Long-Run Effects of Monetary Policy
-(Figure: Short-Run and Long-Run Effects of Monetary Policy) Look at the figure Short-Run and Long-Run Effects of Monetary Policy. If the economy is initially at E₂ and the central bank makes no change in its monetary policy:

• A)AD₂ will shift to the right, increasing the existing inflationary gap.
• B)AD₂ will shift to the left, closing the inflationary gap.
• C)SRAS₁ will eventually shift to the left, closing the existing inflationary gap but raising the aggregate price level.
• D)SRAS₂ will immediately shift to the right, increasing the existing inflationary gap.

---

Definitions:

Equivalent Units

A concept in cost accounting that converts partially completed goods into a number of completed units for inventory valuation.

Materials

Raw inputs or supplies that are converted into finished products through the manufacturing process.

FIFO Method

"First In, First Out", an inventory valuation method where the first items placed into inventory are the first sold, affecting the cost of goods sold and inventory value.

Equivalent Units

A concept in process costing used to convert partially finished goods into a number of complete units of output, facilitating cost calculation.