In the Long Run, When Interest Rates Are Set by the Spending

question 10

Multiple Choice

In the long run, when interest rates are set by the spending balance and GDP is set by potential GDP, money is neutral

• A) even if inflation reduces the cost of capital through the workings of the tax system.
• B) even if inflation makes physical capital more attractive than financial assets.
• C) even if inflation creates inefficiency in the monetary system.
• D) even if inflation's variability makes business planning difficult at best.
• E) only if none of the above apply.

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Definitions:

Double-Declining Balance

A method of accelerated depreciation which doubles the normal depreciation rate, reducing the asset's book value more quickly in its early years.

Salvage Value

The estimated residual value of an asset at the end of its useful life.

Straight-Line Depreciation

A method of allocating an asset's cost evenly across its useful life.

Salvage Value

The estimated resale value of an asset at the end of its useful life, often considered during depreciation calculations.