Firms Have Inventories That They Can Draw Down to Meet

question 336

Multiple Choice

Firms have inventories that they can draw down to meet an increase in demand. This will

• A) have no effect on the multiplier, because the MPC remains unchanged.
• B) increase the size of the multiplier, because firms will be able to respond more quickly to a change in demand.
• C) decrease the size of the multiplier, because output will not immediately respond to changes in demand.
• D) either increase or decrease the multiplier, depending on the size of the MPC.

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