In the Graphs Below, Q_P Refers to the Economy's Potential

question 37

Multiple Choice

In the graphs below, Q_P refers to the economy's potential output level. Refer to the graphs above. In Graph A, a decrease in the price level from P₁ to P₃ will lead to:

• A) A decrease in profits, an increase in real output, and a decrease in the unemployment rate
• B) A decrease in profits, a decrease in real output, and a decrease in the unemployment rate
• C) A decrease in profits, a decrease in real output, and an increase in the unemployment rate
• D) An increase in profits, an increase in real output, and a decrease in the unemployment rate

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Definitions:

Striking Price

The predetermined price at which the holder of an option can buy or sell the underlying security.

Cumulative Feature

A characteristic of certain preferred stocks or securities where unpaid dividends accumulate and must be paid before dividends to common stockholders.

Common Dividends

Distributions of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders known as common shareholders.

Fundamental Analysis

The assessment of a company's value by examining related economic, financial, and other qualitative and quantitative factors.