Suppose That as a Result of Expectations of Lower Sales

question 59

Multiple Choice

Suppose that as a result of expectations of lower sales in the future,a decrease in autonomous business investment causes aggregate demand to shift from AD₀ to AD₁ as shown in Figure 10.1.Which of the following statements is true?

• A)According to Keynesian theory,the economy will quickly adjust back to full employment.
• B)According to Keynesian theory,additional decreases in aggregate demand will occur.
• C)In the absence of any additional decreases in investment,the equilibrium will remain at Q₁ indefinitely.
• D)The GDP gap will be eliminated by the multiplier.

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Definitions:

Sales

The total amount of revenue generated by the selling of goods or services related to a company's primary operations.

Routine Pricing

A method where prices are set based on standard costs plus a fixed profit margin, commonly used in consistent market conditions.

Variable Costs

Costs that vary directly with the level of production or sales volume.

Period Cost

Costs that are expensed in the period in which they are incurred, not directly tied to production activities.