The Degree of Responsiveness of Aggregate Output to a Price

question 81

Multiple Choice

The degree of responsiveness of aggregate output to a price change declines as the:

• A)rate of savings increases.
• B)economy approaches its potential output.
• C)GDP gap widens over time.
• D)the price elasticity of imports declines.
• E)the excess capacity of all the firms in the economy increases over time.

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Definitions:

Fixed Costs

Expenditures that do not vary with the level of activity or production within a short time frame.

Variable Costs

Expenses that change in proportion to the activity of a business, such as raw materials and direct labor costs.

Total Dollar Amount

The complete sum of money involved in a transaction, including all costs and taxes.

Level of Activity

A measure used in accounting and production to determine the extent to which a business operation is being utilized, often influencing cost behavior.