When Expansionary Monetary Policy Pushes Real Interest Rates to an Artificial

question 18

Multiple Choice

When expansionary monetary policy pushes real interest rates to an artificial low, the Austrian view of the business cycle predicts this will lead to

• A)an increase in aggregate demand and a lengthy expansion in real output.
• B)a recession, followed by a strong and lengthy expansion in real output.
• C)malinvestment during an economic boom, followed by a recession.
• D)malinvestment during a temporary recession, followed by a strong and lengthy economic boom.

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Definitions:

Investing Activities

Refers to the acquisition and disposition of long-term assets and other investments not included in cash equivalents.

Free Cash Flow

The amount of operating cash flow available to a company after it purchases the property, plant, and equipment necessary to maintain its current operations, computed as cash flows from operating activities less cash used to purchase property, plant, and equipment.

Operating Cash Flow

Cash generated from the core business operations of a company, excluding financing and investment activities.

Direct Method

In cash flow reporting, it involves directly identifying and reporting major classes of gross cash receipts and payments.