The Relationship Between Sticky Input Prices and Flexible Output Prices

question 4

Multiple Choice

The relationship between sticky input prices and flexible output prices explains:

• A) the positive slope of the short-run aggregate supply curve.
• B) the vertical slope of the long-run aggregate supply curve.
• C) the negative slope of the short-run aggregate supply curve.
• D) the negative slope of the aggregate demand curve.
• E) the positive slope of both the short-run and long-run aggregate supply curves.

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Definitions:

Financial Leverage

Employing leveraged capital to enhance the expected returns on an investment.

Operating Leverage

The degree to which a company uses fixed operating costs, whereby a small change in sales significantly affects profitability.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales volume, emphasizing the impact of fixed costs.

EBIT

Earnings Before Interest and Taxes represents a metric for gauging a firm's profit, specifically excluding expenses related to interest and taxes.