Within the Aggregate Demand and Aggregate Supply Framework, Fiscal Policy

question 80

Multiple Choice

Within the aggregate demand and aggregate supply framework, fiscal policy that emphasizes activist government policies to stabilize the economy would view cutting personal income taxes as primarily a shift:

• A)right in the aggregate demand curve.
• B)left in the aggregate demand curve.
• C)right in the aggregate supply curve.
• D)left in the aggregate supply curve.

Understand the impact of different financial elements such as financial distress, agency costs, and bankruptcy costs on a firm's target capital structure.

Grasp the basic principles of the Modigliani-Miller (MM) theorem, including its propositions with and without taxes.

Differentiate between business risk and financial risk and their determinants.

Comprehend the concept of financial leverage and its impact on a firm’s earnings per share (EPS) and earnings before interest and taxes (EBIT).

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Definitions:

Long Run

A period in economic analysis where all inputs can be adjusted and there are no fixed factors of production.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the true profitability of a company.

Short Run

A period in economics during which at least one input is fixed and cannot be changed. It contrasts with the long run, where all inputs can be adjusted.

Long Run

A period in economic analysis during which all factors of production and costs are variable, allowing for full industry adjustment.