According to Real Business Cycle Theory,an Increase in Financial Frictions

question 66

Multiple Choice

According to real business cycle theory,an increase in financial frictions might lead to ________,if ________.

• A)a decrease in output;the rise in the credit spread causes a leftward shift of aggregate demand
• B)a decrease in inflation;the disruption of capital markets results in a leftward shift of long-run aggregate supply
• C)a decrease in output;the disruption of capital markets results in a leftward shift of long-run aggregate supply
• D)a decrease in output;a decline in expected output causes a leftward shift of aggregate demand

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Definitions:

Work in Process

Inventory that includes goods partially completed but not yet ready for sale.

Predetermined Overhead Rate

The rate used to allocate estimated overhead costs to products or job orders, based on a preselected activity base.

Direct Labor Cost

The total expense that a company incurs for the labor directly involved in the manufacture of a product.

Work in Process

Goods partially completed during the manufacturing process; they are not yet finished products.