According to the Misperceptions Theory of Aggregate Supply,if a Firm

question 306

Multiple Choice

According to the misperceptions theory of aggregate supply,if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent,then the firm would believe that the relative price of what they produce had

• A) increased,so they would increase production.
• B) increased,so they would decrease production.
• C) decreased,so they would increase production.
• D) decreased,so they would decrease production.

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Definitions:

Compounded Quarterly

An interest calculation method where interest is added to the principal sum of a deposit or loan on a quarterly basis, leading to interest earning interest.

Present Value

The present worth of a future amount of money or series of cash inflows based on a certain return rate.

Retirement Annuities

Financial products that provide a stream of payments to individuals after retirement, typically funded through premiums paid over time.

Compounded Semiannually

Interest on a loan or investment calculated twice a year, adding each interest payment to the principal amount before the next calculation.