Suppose the Economy Is in Long-Run Equilibrium

question 23

Multiple Choice

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

• A)rise.This rise in price expectations shifts the short-run aggregate supply curve to the right.
• B)rise.This rise in price expectations shifts the short-run aggregate supply curve to the left.
• C)fall.This fall in price expectations shifts the short-run aggregate supply curve to the right.
• D)fall.This fall in price expectations shifts the short-run aggregate supply curve to the left.

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Definitions:

Fixed Manufacturing Costs

Expenses related to the production process that do not vary with the volume of production, such as salaries of supervisors and rent of the factory.

Markup

The amount added to the cost of goods to cover expenses and generate profit.

Estimated Costs

The anticipated expenses associated with a project or production, calculated before actual expenses are known.

Cost-Plus Approach

A pricing strategy where the selling price is determined by adding a specific markup to the cost of the product or service.