When the Economy Is Hit by a Negative Demand Shock

question 30

Multiple Choice

When the economy is hit by a negative demand shock and the central bank does not respond by changing the autonomous component of monetary policy,then

• A)inflation will be lower.
• B)output will be at its potential.
• C)output will be lower.
• D)inflation will not change.
• E)both A and B.

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Definitions:

Black-Scholes Option-pricing Model

A mathematical model for pricing European call and put options, using factors like the stock's price, exercise price, risk-free rate, and time to expiration.

Dividend Payouts

Distributions made to shareholders by a company, typically from earnings.

Time Value

The portion of an option's price that exceeds its intrinsic value, representing the potential for additional value based on time remaining until expiration.

Out-of-the-money

A term used in options trading to describe an option that would not profit if exercised immediately, i.e., a call option with a strike price above the underlying asset's price or a put option below it.