Opponents of Using Policy to Stabilize the Economy Generally Believe

question 22

Multiple Choice

Opponents of using policy to stabilize the economy generally believe that

• A)neither fiscal nor monetary policy have much impact on aggregate demand.
• B)attempts to stabilize the economy decrease the magnitude of economic fluctuations.
• C)unemployment and inflation are not cause for much concern.
• D)economic conditions can easily change between the start of policy action and when it takes effect.

---

Definitions:

SML Approach

The Security Market Line approach, a concept in finance that describes the risk vs. return relationship for individual securities, based on the capital asset pricing model (CAPM).

Firm's Beta

A measure of a stock's volatility in comparison to the market as a whole, indicating its riskiness.

Cost of Equity

The return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital.

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital weighted by each category of capital, including equity and debt, reflective of the risk and cost of each type of financing.