Using Figure 8.2,a decrease in real output resulting from the profit effect would be depicted as a movement from point
A)A to point C.
B)B to point A.
C)B to point C.
D)C to point B.

Question

Using Figure 8.2,a decrease in real output resulting from the profit effect would be depicted as a movement from point
A)A to point C. 
B)B to point A. 
C)B to point C. 
D)C to point B.

Quizplus · Accepted Answer

According to Figure 8.2, the profit effect occurs when the price level decreases, increasing the purchasing power of firms' revenues, and leading to an increase in profits. This leads to an increase in output at point B. A decrease in output resulting from the profit effect would be depicted as a movement from point B to point C.