Author Question: Past expenses are irrelevant to supply decisions, because A) expenses incurred in the past never ... (Read 165 times)

KimWrice · **on:** Jun 29, 2018

Past expenses are irrelevant to supply decisions, because

A) expenses incurred in the past never affect the opportunities available in the present.
B) it is essential to avoid bankruptcy.
C) no one remembers the past.
D) supply decisions depend on opportunities that will have to be forgone, not opportunities already forgone.

Question 2

What is the aggregate demand multiplier and why does it occur?

What will be an ideal response?

meganlapinski · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

The aggregate demand multiplier is an effect that magnifies changes in expenditure plans. So, for example, if some component of expenditure such as investment increases, aggregate demand increases by more than the increase in investment. The aggregate demand multiplier exists because when aggregate demand increases, households' incomes increase. Then the increase in income results in an increase in consumption expenditure, which adds to the initial increase in aggregate demand.