Suppose That a Permanent Reduction in Export Demand Were Matched

question 55

Multiple Choice

Suppose that a permanent reduction in export demand were matched exactly in its first year only by increasing government spending. Compared with the long-term outcome that you would expect in the absence of this policy adjustment, you would now expect to see

• A) the same downward price adjustment to accommodate lower demand postponed by one year.
• B) the same downward price adjustment to accommodate lower demand operating along the same time schedule that was unaffected by neutral fiscal policy.
• C) the same upward price adjustment to accommodate lower demand postponed one year.
• D) the same upward price adjustment operating along the same time schedule.
• E) none of the above.

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Definitions:

Profit Margin

A financial metric expressed as a percentage, indicating how much of each dollar in revenue is translated into profit.

Market-to-Book Ratio

A comparison of a company's current market value to its book value, used to assess whether a stock is under or overvalued.

Price-Earnings Ratio

A valuation metric for companies, calculated by dividing the current market price of a stock by its earnings per share, indicating how much investors are willing to pay per dollar of earnings.

Book Value Per Share

Book value per share is a financial measure that quantifies the actual value of a company’s stock based on historical costs, expressed as the company's total net assets divided by the number of outstanding shares.