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Management Decisions: Declining Income (Scenario)

question 143

Multiple Choice

Management Decisions: Declining Income (Scenario)
Net income has fallen for the second consecutive quarter, and Amanda is understandably worried. She knows there will be a lot of questions for her at the board of directors meeting Wednesday, and she will be expected to reveal her plan to avoid any third-quarter losses. Amanda begins to analyze the company's financial reports to try to determine the cause of the loss. After much consideration, it appears that expenses have risen dramatically over the last few months. Amanda wonders why. She decides a meeting of the department heads is in order first thing tomorrow morning. At the meeting, Amanda would like to generate several possible solutions to the increased expenses. She wonders how to effectively explore all the options. Next morning, the first option presented at the meeting is to downsize the research and development department, since it is not essential to current operations. Several managers believe the plan will help stem the losses and immediately move to approve it. However, Amanda suggests that they need to look further at the issue and explore other potential solutions. Several suggestions are made, many of which appear to be viable. Amanda wonders what to do next.
-What is the first step in the decision-making process facing Amanda?

Definitions:

Government Spending

Financial expenditures by the government, including investments, consumption, and transfer payments, aimed at influencing the economic activity.

Total Income

The aggregate earnings received by an individual or entity, including wages, salaries, profits, rent, and other income streams, over a specific time frame.

Multiplier

In economics, a factor by which an increase in spending leads to a greater increase in national income.

Open-market Purchase

Transactions where central banks buy securities in the open market to increase the money supply and stimulate economic activity.