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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Definitions:

Naturalistic Theory

A theory that explains phenomena or knowledge in terms of natural causes and processes, as opposed to supernatural or spiritual explanations.

Disharmony

A state of conflict or disconnection among elements that are meant to work together, often leading to dysfunction or imbalance.

Yin/Yang Theory

A fundamental concept in Chinese philosophy and culture, describing how opposite or contrary forces are interconnected and complementary in the natural world.

Tao

A fundamental concept in Chinese philosophy and religion, usually translated as "the Way," denoting the natural order or a principle that is the source of everything.