Figure 19.1 -Which of the Following Is the Most Likely Explanation for Likely

question 51

Multiple Choice

Figure 19.1
-Which of the following is the most likely explanation for the behavior of private inventories between September 2007 and September 2009,as depicted in Figure 19.1?

• A)a substantial decline in the desired level of inventories,due to a slump in aggregate demand
• B)a substantial decline in the desired level of inventories,as improvements in technology have reduced the size of inventories needed to support both production and customer deliveries
• C)an unanticipated draw-down of inventories as the economy was growing much faster than expected
• D)a substantial decline in the desired level of inventories,as changes in the tax code increased the cost of holding inventories

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Definitions:

Coase Theorem

A principle that asserts if property rights are clearly defined and transaction costs are low, private negotiations will lead to the efficient resolution of disputes over the allocation of resources.

Transaction Costs

The costs that parties incur during the process of agreeing to and following through on a bargain.

Mutually Beneficial Agreement

An arrangement between parties where both or all receive benefits or advantages.

Coase Theorem

A legal and economic theory that states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.