### Suppose that the economy is in long-run macroeconomic equilibrium and aggregate demand increases.

Question: Suppose that the economy is in long-run macroeconomic equilibrium and aggregate demand increases. As the economy moves to short-run macroeconomic equilibrium, there is:

ANSWER: An inflationary gap with low unemployment.

### Osaka Co. acquired a 10% interest in Chen Corp. on December 31, 2013 for HK\$3,780,000.

Osaka Co. acquired a 10% interest in Chen Corp. on December 31, 2013 for HK\$3,780,000. During 2014, Chen had net income of HK\$2,400,000 and paid cash dividends of HK\$600,000. Osaka’s 2014 income statement will report

a. dividend income of HK\$60,000.
b. investment income of HK\$180,000.
c. investment income of HK\$240,000.
d. cannot be determined from the information given.

Step-by-Step explanation

Osaka’s share of Chen’s net income for 2014 is 10% × HK\$2,400,000 = HK\$240,000.

Osaka’s share of Chen’s cash dividends for 2014 is 10% × HK\$600,000 = HK\$60,000.

Osaka’s investment income for 2014 is therefore HK\$240,000 – HK\$60,000 = HK\$180,000.

### Nance Company owns 40% interest in the shares of Finley Corporation.

Nance Company owns 40% interest in the shares of Finley Corporation. During the year,Finley pays \$25,000 in dividends, and reports \$100,000 in net income. Nance Company’sinvestment in Finley will increase by

a.\$25,000.
b.\$40,000.
c.\$32,000.
d.\$30,000.

ANSWER: The investor reports his or her portion of the investee’s net income using the equity method, in this case 40% of \$100,000 = \$40,000.

### The point where the long-run aggregate supply curve intercepts the horizontal axis is:

The point where the long-run aggregate supply curve intercepts the horizontal axis is:
A) the point that reflects the economy’s actual output.
B) the economy’s potential output.
C) the level of real GDP the economy would produce if all prices were flexible and wages were fixed.
D) impossible to attain.

### In the long run, changes in the aggregate price level will be accompanied by _____ proportional changes in input prices.

In the long run, changes in the aggregate price level will be accompanied by _____ proportional changes in input prices.
A) less than
B) more than
C) equal
D) opposite

### The long-run aggregate supply curve is vertical because in the long run:

The long-run aggregate supply curve is vertical because in the long run:
A) technological progress outpaces raises in nominal wages.
B) all factors of production increase.
C) the price of labor is flexible, while the price of physical capital is fixed.
D) all prices are flexible.

### Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is:

Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is:
A) upward sloping.
B) vertical.
C) horizontal.
D) downward sloping.