Starting from Potential Output, If Consumer Confidence Decreases and Consumers

question 91

Multiple Choice

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n) ________ gap and inflation will ________.

• A)recessionary; increase
• B)recessionary; decrease
• C)expansionary; decrease
• D)expansionary; increase

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Definitions:

Net Operating Income

The profit realized from a business's operations after subtracting operating expenses but before taxes and interest.

Variable Selling

Refers to the costs associated with selling a product or service that fluctuate with the level of sales activity, such as commissions and shipping charges.

Absorption Costing

A cost accounting methodology that absorbs all production costs, like direct materials, direct labor, and overhead expenses whether variable or fixed, into the final cost of a product.

Variable Costing

A costing method that includes only the variable manufacturing costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.