If Expectations Are Formed Rationally,wages and Prices Are Completely Flexible

question 8

Multiple Choice

If expectations are formed rationally,wages and prices are completely flexible in both the short run and the long run,and policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP in

• A) the short run or the long run.
• B) neither the short run nor the long run.
• C) the short run,but not in the long run.
• D) the long run,but not in the short run.

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Definitions:

Selling Price

The amount of money for which something is sold to a buyer, after considering production, marketing, and distribution costs.

Fixed Cost

Fixed costs, including rent, salaries, and insurance, stay the same no matter how much is produced or sold.

Contribution Margin

The amount remaining from sales revenue after variable costs are deducted, contributing towards covering fixed costs and earning profit.

Break Even Point

The point at which total costs and total revenue are equal, meaning the business is neither making a loss nor a profit.