Using Figure 2 Above, Suppose That the Economy Started at PAE2

question 60

Multiple Choice

Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE1 might be:

• A) wealth level decreases.
• B) interest rates decrease.
• C) expected profitability of investments increase.
• D) domestic income decreases.

---

Definitions:

Variable Cost

A cost that varies in direct proportion to changes in the level of activity or production volume.

Fixed Cost

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance.

Total Miles Driven

The cumulative distance that a vehicle has traveled, often used for business accounting or to monitor vehicle performance and maintenance needs.

Gasoline Costs

The expense incurred from purchasing gasoline, often considered a significant variable cost for companies dependent on transportation.