The Paradox of Thrift Does Not Exist in the Long

question 107

Multiple Choice

The paradox of thrift does not exist in the long run because

• A)not everyone increases saving in the long run.
• B)aggregate supply has an impact on real GDP only in the short run.
• C)everyone increases consumption in the long run.
• D)changes in aggregate demand have no impact on real GDP in the long run.
• E)potential output is determined by changes in the price level.

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Definitions:

Asset Allocation

The strategy of dividing an investment portfolio across various asset categories, such as stocks, bonds, and cash to optimize risk and return.

Efficient Portfolio Frontier

A curve representing the set of portfolios that offer the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Specifying Asset Classes

The process of identifying distinct categories of assets, such as stocks, bonds, and real estate, based on their characteristics and functions in investment portfolios.

Capital Market Expectations

The forecasted future returns, volatilities, and correlations for the major asset classes, which are essential for the strategic asset allocation process.