Economists Treat Potential Output Differently When Considering the Short Run

question 10

Essay

Economists treat potential output differently when considering the short run than when considering the long run.Explain this difference.

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Definitions:

Wildcat Fund

An investment fund that takes higher risks with the expectation of higher returns, often investing in speculative ventures.

Sharpe Measure

A metric used to gauge the performance of an investment by adjusting for its risk, calculated as the difference between the investment's return and the risk-free rate, divided by the investment's standard deviation.

Risk-Free Return

The theoretical return on an investment with zero risk of financial loss, often represented by the return on government securities.

Treynor's Measure

A performance metric for determining how well an investment portfolio has compensated the investor for the risk taken, using beta as the risk measure.