If the Fed Raises the Interest Rate, the First Effect

question 40

Multiple Choice

If the Fed raises the interest rate, the first effect in an AS/AD figure is____________a shift of the ____________curve.

• A) leftward; SAS
• B) rightward; SAS
• C) leftward; AD
• D) rightward; AD

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Definitions:

Target Capital Structure

The optimal mix of debt, preferred stock, and common equity that a company aims to maintain for financing its operations.

Debt-equity Ratio

A gauge of how shareholders' equity and debt proportionately finance a company’s assets.

Taxes

Mandatory monetary payments or fees imposed by the government on people or organizations to finance public spending.

Bankruptcy Claims

Financial demands made by creditors against a debtor who has declared bankruptcy.