The Degree of Responsiveness of Aggregate Output to a Price

question 81

Multiple Choice

The degree of responsiveness of aggregate output to a price change declines as the:

• A)rate of savings increases.
• B)economy approaches its potential output.
• C)GDP gap widens over time.
• D)the price elasticity of imports declines.
• E)the excess capacity of all the firms in the economy increases over time.

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Definitions:

Risk-Free Rate

The anticipated rate of return on an investment devoid of risk, commonly represented by the interest rates of government bonds.

Market Risk Premium

The extra return expected by investors for holding a risky market portfolio instead of risk-free assets, reflecting the additional risk.

Overall Operations

Refers to the comprehensive activities and processes undertaken by a business to produce and sell its products or services.

Overall Cost of Capital

The weighted average rate of return a company must pay to finance its assets, combining the cost of debt and equity funding.