Because of Intertemporal Substitution,the Effect of a Negative Economic Shock

question 149

Multiple Choice

Because of intertemporal substitution,the effect of a negative economic shock on real GDP will:

• A) be larger than otherwise.
• B) become a positive shock in the end.
• C) disappear immediately.
• D) occur only in the long run,but not during the short run.

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Definitions:

Pre-tax Net Income

The amount of income earned by a company before taxes are deducted, representing its profitability.

Incremental Cash Flows

Additional cash flows from a new project or investment, considered when evaluating the financial viability of that project.

Stand-alone Principle

An approach to evaluating investment decisions without considering any potential impacts from external projects or operations.

Sunk Cost

A cost that has already been incurred and cannot be recovered, which should not affect future investment decisions.