Inflation Is Not a Problem

question 139

Multiple Choice

Inflation is not a problem

• A) if it is under 15 percent,as it usually is in the United States.
• B) if salaries rise at a slower rate than inflation.
• C) if the prices of some goods fall even though the prices of others might be rising.
• D) except that when it occurs,it creates uncertainty over future prices (along with other possible deleterious effects).
• E) and is not preferred when compared to deflation.

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Definitions:

Market Risk Premium

The extra return expected by investors for taking on the risk of investing in the stock market over a risk-free rate.

Security Market Line

A line representing the relationship between the expected return of a market security and its risk, as measured by beta.

Systematic Risk

The collective risk for all investments in a market or a specific part of the market that cannot be offset through diversification.

Unsystematic Risk

The danger linked to a certain company or sector that can be reduced by spreading investments across a varied portfolio.