In the Short Run, If the Price Level Rises, Then

question 135

Multiple Choice

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

• A) workers can be switched from counted to uncounted production.
• B) existing capital equipment can be used more intensively.
• C) wage rates rise almost simultaneously with the price level.
• D) the unemployment rate usually rises dramatically along with the price level.

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Definitions:

Marginal Cost

The supplementary cost attached to the output of an additional product or service unit.

Diminishing Marginal Product

The principle stating that as one inputs more of a factor of production while holding other inputs constant, the added output produced from each additional unit of the variable input eventually decreases.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, or loan payments.

Marginal Cost

The added expense incurred by creating one more unit of a product or service.