Assume Firms Have Inventories That They Can Draw Down to Meet

question 31

Essay

Assume firms have inventories that they can draw down to meet an increase in demand. What impact will this have on the size of the multiplier and why?

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Definitions:

Pension Plan

A retirement savings plan sponsored by an employer, providing a fixed payout to employees upon retirement.

Multiplier

A factor that quantifies the change in economic activity resulting from a change in spending, used in macroeconomic analysis to estimate the effect of investment, government spending, and other economic activities.

Career Average

Indicates the average achievements, earnings, or performance levels over the span of an individual's career.

Social Security

An insurance program available through the United States government that provides income to people who retire, become disabled, or who receive survivor’s benefits.