FIGURE 24-1 -Refer to Figure 24-1. Suppose the Economy Is Currently in Currently

question 99

Multiple Choice

FIGURE 24-1
-Refer to Figure 24-1. Suppose the economy is currently in a short-run equilibrium with output of Y0. An appropriate fiscal policy response, to attain potential output Y*) , is

• A) an increase in personal income taxes.
• B) a reduction in government purchases of goods and services.
• C) an increase in corporate income taxes.
• D) an increase in government purchases.
• E) an increase in interest rates to encourage increased saving.

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Definitions:

Reinvested

Refers to the practice of using profits or dividends earned from an investment to purchase additional shares or units, thus compounding the investment's growth.

Cost of Capital

The minimum rate of return a company must earn on its investments to maintain its market value and attract funds.

Capital Rationing

The process of selecting the most profitable projects to invest in when funds are limited.

Capital Budgeting

Capital budgeting involves the process of deciding which long-term investments or projects a company should undertake, based on potential profitability and risk.