An example of a transitory change in income is the
a. annual cost of living adjustment to your salary.
b. increase in income that results from a job promotion linked to your education.
c. increase in income of California orange growers that results from an orange-killing frost in Florida.
d. All of the above are correct.
c
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Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?
a. Prices will decline, bringing actual output into balance with its potential. b. The natural rate of unemployment will increase and, thereby, restore equilibrium. c. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity. d. Lower interest rates will increase the economy's long-run capacity and restore equilibrium.
When the output of an economy exceeds the economy's full-employment capacity,
a. aggregate supply will increase until the economy can produce the output at the existing price level. b. the actual rate of unemployment will be less than the natural rate. c. wage rates and resource prices will tend to fall. d. interest rates will decline and help direct the economy back to full employment.