When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending, and a recession results:
A. a self-correction has occurred.
B. an adverse aggregate supply shock has occurred.
C. a coordination failure has occurred.
D. a real-business downturn has occurred.
B. an adverse aggregate supply shock has occurred.
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If average productivity falls, will marginal cost necessarily rise? How about average cost?
A. If average productivity is falling, average cost must be falling; if marginal productivity is falling, marginal cost must be falling. But there is no necessary relationship between average productivity and marginal cost. B. If average productivity is falling, average cost must be rising; if marginal productivity is falling, marginal cost must be rising. But there is no necessary relationship between average productivity and marginal cost. C. If average productivity is falling, both average and marginal costs must be falling; if marginal productivity is falling, both average and marginal costs must be falling as well. In other words, saying that average productivity and marginal productivity are falling has the same repercussions for costs. D. If average productivity is falling, both average and marginal costs must be rising; if marginal productivity is falling, both average and marginal costs must be rising as well. In other words, saying that average productivity and marginal productivity are falling has the same repercussions for costs.
If consumption were a direct function of disposable income, how would a decrease in personal taxes or an increase in transfer payments affect consumption?