The Notion That When the Price of an Input Falls,a

question 25

Multiple Choice

The notion that when the price of an input falls,a firm's marginal cost curve shifts down and overall production increases so that more of every input is employed is known as

• A)the output effect.
• B)the substitution effect.
• C)the input effect.
• D)the cost effect.

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Definitions:

Nominal Interest Rate

The real interest rate plus the inflation rate.

Real Interest Rate

The interest rate adjusted for inflation, providing a more accurate measure of the cost of borrowing and the real yield to investors.

Wage-Price Spiral

A situation where rising wages increase disposable income, leading to higher demand for goods and services, which then leads to higher prices and further wage demands.

Higher Wages

Increased salaries or hourly rates paid to employees.