The Stability of Consumption Over the Business Cycle and the Ability

question 189

Multiple Choice

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that

• A) government policy can improve the performance of the economy.
• B) market economies are inherently unstable.
• C) a market economy has a self-correcting mechanism that will help guide it toward full employment.
• D) recessions will be lengthy, and high rates of unemployment will persist for a period of time even after the economy recovers.

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Definitions:

LIFO Reserve

The difference between the cost of inventory calculated using the Last In, First Out (LIFO) method and the cost calculated using the First In, First Out (FIFO) method.

FIFO Assumption

An accounting method where the first items purchased or produced are the first ones used or sold.

LIFO Reserve

The difference in value between inventory calculated using the Last-In, First-Out (LIFO) method and the First-In, First-Out (FIFO) method, used to adjust COGS and inventory valuation.

Cost of Goods Sold

An accounting term for the direct costs attributable to the production of the goods sold by a company, including materials and labor.