Ceteris Paribus, the Multiplier Effect Would Be Largest in Which

question 183

Multiple Choice

Ceteris paribus, the multiplier effect would be largest in which situation?

• A) when prices are fixed
• B) when prices are flexible
• C) when the government borrows from its citizens to cover increased deficit spending
• D) when the government has a balanced budget

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Definitions:

Contribution Margin Ratio

A financial metric that shows the percentage of sales revenue that exceeds variable costs, contributing to covering fixed costs and generating profit.

Residual Income

The net income that exceeds the minimum required return on investment or capital; often used as a performance measure in managerial accounting.

Investment Opportunity

An option to allocate resources with the expectation of generating a return or profit in the future.

Turnover

In business, refers to the rate at which employees leave a company and are replaced by new hires; can also refer to the total sales in a given period.