A Central Idea Behind the AD-AS Model Is That,during a Recession,the

question 26

Multiple Choice

A central idea behind the AD-AS model is that,during a recession,the price level will decline,which will boost aggregate demand and,thus,eliminate the recessionary gap without requiring any help from government policies.The decline in the price level is expected to boost aggregate demand because of

• A) the real-balances effect on consumption.
• B) the price effect.
• C) the foreign trade effect on net exports.
• D) the Fisher effect.
• E) a combination of the real-balances effect and the foreign trade effect.

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Definitions:

Overstating

The act of reporting financial statements or values higher than they actually are, leading to a misrepresentation of a company's financial condition.

Moving-average Cost

An inventory costing method where the cost of goods sold and ending inventory value are determined based on the average cost of all similar items in inventory.

Perpetual Inventory System

An inventory system that records adjustments to inventory levels continuously as transactions occur.

Ending Inventory

The value of goods available for sale at the end of an accounting period, after accounting for purchases and the cost of goods sold.