The Menu Cost Theory States That

question 35

Multiple Choice

The menu cost theory states that

• A) prices are not fully flexible because it is costly for firms to change prices every time there is a demand change.
• B) economic agents quickly learn the likely responses of the Fed to changes in unemployment.
• C) prices depend only on the input costs.
• D) the economy is characterized by perfect competition.

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Definitions:

Accrual-Based Net Income

The net income of a company calculated based on accrual accounting, recognizing revenues when earned and expenses when incurred, regardless of cash flow.

IntrA-Entity Gains

Profits resulting from transactions within the same entity, often requiring elimination during the consolidation process to avoid inflating earnings.

Initial Value Method

An accounting method where an investment is recorded at its acquisition cost without subsequent adjustment for changes in market value.