In an Economic Downturn, Sticky Wages and Prices Reduce the Economy's

question 326

Multiple Choice

In an economic downturn, sticky wages and prices reduce the economy's speed of adjustment because

• A) businesses are unable to adjust quickly to changes in aggregate demand.
• B) they cause deflation.
• C) hyperinflation will likely occur.
• D) union workers would likely quit and look for work elsewhere.

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Definitions:

Overhead Costs

Overhead costs refer to the indirect expenses related to the operation of a business, such as utilities, rent, and administrative salaries.

Activity-Based Costing

A technique in cost accounting which allots overhead and indirect costs to related products and services, dependent on the activities they engage in.

Activity Cost Pools

Groups of individual costs driven by the same cost drivers, used in activity-based costing to allocate costs more accurately.

Customer Margin

The profit margin that a company earns from a particular customer, taking into account all revenues and costs associated with that customer.