Refer to the Above Graph

question 14

Multiple Choice

Refer to the above graph.Given that the economy is at an initial equilibrium where the AD₁ and AS₁ curves intersect, demand-pull inflation in the short run can best be represented by a shift from:

• A)AS₁ to AS₃.
• B)AD₁ to AD₂.
• C)AS₁ to AS₂.
• D)AD₂ to AD₁.

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Definitions:

Cost of Equity

The return that shareholders require or expect to realize on their investment, representing the opportunity cost of investing in the company.

Yield

The earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment's cost or current market value.

Risk Premium

The extra return or reward that an investor expects to receive for taking a higher risk compared to a risk-free asset.

Cost of Debt

The effective rate that a company pays on its current debt, including loans and bonds, often considered in capital structure decisions.