Which of the Following Reasons Helps Explain Why the Aggregate

question 86

Multiple Choice

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

• A) The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power.
• B) The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more.
• C) The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services.
• D) The cost-pull effect: As costs of production rise, consumers are pulled to buy more of the products they want most.

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Definitions:

Payback Rule

A capital budgeting method that determines the length of time required to recoup the initial investment from the cash inflows produced by the investment.

Time Value

The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.

Profitability Index

A calculation used to assess the attractiveness of an investment, calculated as the present value of future cash flows divided by the initial investment.

Independent Project

A project that can be pursued without affecting the acceptance or funding of other projects, allowing for standalone consideration in decision-making.