The Figure Below Plots Real and Potential GDP Between 1971

question 179

Essay

The figure below plots real and potential GDP between 1971 and 1977.Given the data in the corresponding table,can changes in the rate of inflation over this period be explained by the percent deviation between real and potential GDP? Do these data support or refute the validity of the assumptions about the IA line?

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Definitions:

Variable Overhead Rate

The cost of indirect manufacturing expenses that fluctuate with production volume, calculated per unit of activity or base.

Efficiency Variance

A measure used in cost accounting to determine the difference between the actual cost of producing an item and the standard cost, based on the actual hours worked.

Budget Variance

The difference between budgeted figures for revenue or expenses and actual figures.

Fixed Overhead Budget

The fixed overhead budget is a financial plan that estimates the fixed costs associated with production, which do not vary with the level of output.