The Assumption That Aggregate Demand Determines Output Is Reasonable Because

question 17

Multiple Choice

The assumption that aggregate demand determines output is reasonable because

• A) firms generally operate with some excess capacity.
• B) firms usually maintain a supply of inventories.
• C) the natural rate of unemployment is between 5 and 6 percent.
• D) all of the above.
• E) none of the above.

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Definitions:

External Cost

An uncompensated cost that an individual or firm imposes on others; also known as negative externality.

Marginal Costs

The additional financial burden incurred from producing another unit of a product or service.

External Cost

A cost incurred by a third party who did not agree to the action causing the cost.

Marginal Costs

The additional cost of producing one more unit of a product or service.