Suppose That Monetary Policy Becomes More Expansionary, and as a Result

question 272

Multiple Choice

Suppose that monetary policy becomes more expansionary, and as a result, the future rate of inflation is higher. Will this be good for the stock market?

• A) Yes; the inflation will lead to higher wages, and this will be good for both the economy and the stock market.
• B) No; the inflation will lead to higher nominal interest rates, and this will reduce the present value of the future net earnings derived from stocks.
• C) Yes; the inflation rate will reduce the long-run rate of unemployment, and this will be good for the stock market.
• D) No; the expansionary monetary policy will lead to lower real interest rates, and this is generally bad for both the economy and the stock market.

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Definitions:

Three Accounts

A fundamental concept in accounting that typically refers to the three major financial statements: the balance sheet, income statement, and cash flow statement.

Accounts Payable

Money owed by a company to its suppliers or vendors for goods and services received but not yet paid for.

Accounts Affected

The specific accounts in the general ledger that are impacted by financial transactions.

Financial Statement

A summary report that quantitatively describes the financial health of a company, including income statements, balance sheets, and cash flow statements.