According to the Price Adjustment Equatio

question 30

Multiple Choice

According to the price adjustment equatio
The price adjustment line
Ê ˆ
Π = Á ˜ + π ^e + Z, Ë Y* ¯

• A) shifts up, indicating higher inflation, if real GDP was above its potential GDP last year and shifts down if real GDP was below its potential.
• B) shifts up if the expected rate of inflation p^e rises and shifts down if the expected rate of inflation falls.
• C) shifts up if there is a positive price shock positive value of Z) and shifts down if there is a negative price shock.
• D) all of the above.
• E) only a and b.

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Definitions:

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the company's short-term liquidity and financial health.

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment or project.

Net After-Tax Salvage Value

The estimated value of an asset at the end of its useful life, after subtracting any taxes associated with its disposal.

Operating Cash Flow

The cash generated from normal business operations, reflecting the company’s ability to generate sufficient revenue to cover its operational expenses.