The Menu Cost Theory States That

question 50

Multiple Choice

The menu cost theory states that

• A)prices are not fully flexible because it is costly for firms to change prices every time there is a demand change.
• B)economic agents quickly learn the likely responses of the Fed to changes in unemployment.
• C)wages depend on the productivity of workers.
• D)the economy is characterized by perfect competition.

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Definitions:

Explicit Interest

Interest rates that are clearly stated and agreed upon, typically seen in loan agreements or bond terms.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for the financing of accounts payable and inventories.

Repayment Terms

Conditions agreed upon by lenders and borrowers regarding how a loan will be repaid, including interest rates and duration.

Revolving Credit Agreement

A legal financial contract between a lender and a borrower that allows the borrower to access funds up to a pre-approved credit limit, repay, and withdraw again.