The Natural Rate Hypothesis

question 227

Multiple Choice

The natural rate hypothesis:

• A) is now generally discredited.
• B) implies sharp limits on what macroeconomic policy can achieve.
• C) implies there is a long-run trade-off between inflation and unemployment.
• D) implies that there is no liquidity trap.

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Definitions:

Effective Interest Method

A technique used in accounting to allocate the interest expense or income over the life of a financial instrument such as a bond or a loan.

Bond Premium

The amount by which the market price of a bond exceeds its face value, often because it offers an interest rate higher than the current market rates.

Callable Bond

A type of bond that gives the issuer the right to repay the bond before its maturity date at a predetermined call price.

Term Bond

A bond that reaches its maturity date at the same time, where the principal amount is due in a lump sum at the end.