If the Economy Is near Full Capacity, the Effect of a Negative

question 341

Multiple Choice

If the economy is near full capacity, the effect of a negative aggregate demand shock is to

• A) increase the level of aggregate demand.
• B) cause the price level to fall.
• C) increase the firm's cost of producing at every level of output.
• D) increase the level of employment.

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Definitions:

Sensitivity of EPS

The degree to which a company's earnings per share (EPS) is affected by fluctuations in its operating income.

ROE

A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.

Target Capital Structure

The optimal mix of debt, preferred stock, and common equity that a company aims to maintain for financing its operations.

Debt-equity Ratio

A gauge of how shareholders' equity and debt proportionately finance a company’s assets.