Consider the Consumption Function $C _ { t } / \bar { Y } _ { t } = \bar { a } _ { c } + \bar { x } \tilde { Y } _ { t }$

question 62

Multiple Choice

Consider the consumption function $C _ { t } / \bar { Y } _ { t } = \bar { a } _ { c } + \bar { x } \tilde { Y } _ { t }$ . If $\bar { x } = 0.5$
, a 2 percent demand shock:

• A) raises short-run output by 1 percent
• B) raises short-run output by 0.5 percent
• C) raises short-run output by 4 percent
• D) reduces short-run output by 4 percent
• E) has no impact on short-run output

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Definitions:

Finished Goods

Goods that are fully manufactured and available for sale to buyers.

Raw Materials Used

The total quantity of raw components consumed in the production process to manufacture goods.

Raw Materials Inventory

The total cost of all the components lying in a manufacturing or production facility that have not yet been used or processed.

Underapplied Overhead

Occurs when the allocated manufacturing overhead cost is less than the actual overhead incurred, leading to under-recovered expenses.