If a Central Bank Employs Policies That Seem Appropriate for the Short

question 22

Multiple Choice

If a central bank employs policies that seem appropriate for the short run but may endanger its long-run goals, then

• A)its actions involve dynamic inconsistency
• B)it should never announce its intentions, because financial markets have a tendency to respond slowly to new information
• C)it should not announce which indicators it is using to assess the success of the policy action
• D)people cannot profit from anticipating the central bank's policy actions
• E)none of the above

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Definitions:

Unrealised Profit

Profit that has been generated on paper through an increase in the value of an asset but has not yet been realized through a sale.

Investor's Share

The portion of an investment's returns or an enterprise's profits allocated to an investor, based on the ownership percentage.

Asset Revaluation Surplus

Excess amount by which an asset's carrying amount is increased upon its revaluation, reported in equity under other comprehensive income.

Investment in Associate

An investment in associate refers to an investment in another entity where the investor has significant influence, usually indicated by owning 20% to 50% of the voting stock, but not control, over the investee.