Which Statement Explains How Real Shocks and Aggregate Demand Shocks

question 26

Multiple Choice

Which statement explains how real shocks and aggregate demand shocks can reinforce and amplify one another?

• A) During a boom,higher wealth and lower risk lead to lower consumer spending but higher business investment.
• B) During a boom,higher wealth and greater risk lead to higher consumer spending but lower business investment.
• C) During a recession,lower wealth and lower risk lead to lower consumer spending but higher business investment.
• D) During a recession,lower wealth and greater risk lead to lower consumer spending and less business investment.

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Definitions:

Long-Run Time Period

A duration in economics where all factors of production and costs are variable, allowing for complete adjustment.

Economies Of Scale

The economical benefits that businesses gain from their operation size, typically resulting in lower costs per unit of output as the scale expands.

Specialization

The process of focusing efforts and resources on a limited number of activities to increase efficiency and productivity.

Fixed Input

A resource in the production process whose quantity cannot easily be changed in the short term, such as buildings and machinery.