The Arguments of Friedman and Phelps Would Suggest That Other

question 47

Multiple Choice

The arguments of Friedman and Phelps would suggest that other things the same,a country that pursues a disinflationary policy that the public does not find completely credible

• A)should not see an increase in the unemployment rate even in the short run.
• B)will having rising unemployment for a while,but then return to the natural rate of unemployment.
• C)will have a permanently higher unemployment rate.
• D)None of the above is suggested by the arguments of Friedman and Phelps.

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Definitions:

M&M Proposition I

A theory stating that the value of a leveraged firm is the same as the value of an unleveraged firm provided there are no taxes, bankruptcy costs, and asymmetric information.

Debt-Ratio

is a financial metric that compares a company's total debt to its total assets, showing how much of the company's assets are financed by debt.

Capital Structure

Refers to how a firm finances its overall activities and growth through different sources of funds, such as debt and equity.

M&M Proposition I

A theory stating that, in a perfect market, the value of a firm is unaffected by how it is financed, regardless of the debt-to-equity ratio.