A. It is a cost that has already been incurred and should be ignored in future decisions
B. It increases with output in the long run
C. It is the only cost relevant for pricing
D. It should always be considered in future decision making
Answer: Option A
Solution (By JKSSB Mock Tests)
Sunk costs are costs that have already been incurred and cannot be recovered. Rational decision-making requires ignoring sunk costs and focusing on future (incremental) costs and benefits.
Explanation:
The financial accelerator describes how deteriorations in borrowers’ balance sheets raise external finance premia, further reducing spending and amplifying the effects of the original shock.
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