The Interest Rate Effect and Real Wealth Effect Are Important

question 65

Multiple Choice

The interest rate effect and real wealth effect are important because they help to explain

• A)why demand management policy cannot be used effectively when aggregate supply shifts to the left.
• B)the downward-sloping nature of the aggregate demand curve.
• C)why equilibrium real GDP rarely coincides with potential real GDP.
• D)why the aggregate demand curve may shift inward or outwarD.
• E)the shape of the aggregate supply curve.

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Definitions:

Cost of Goods Sold

The financial outlays directly connected with creating the products a company sells, which entail materials and labor.

Purchases Returns and Allowances

Transactions involving the return of goods to suppliers or receiving discounts due to issues like damaged goods, leading to a reduction in purchase costs.

Merchandise Inventory

The goods a company holds in stock with the intention of selling them as part of its business operations.

Freight-In

Freight-in refers to the shipping cost associated with getting goods delivered from suppliers to the buyer, often included in the inventory cost of purchased goods.