When the Economy Is Experiencing a Negative Output Gap

question 70

Multiple Choice

When the economy is experiencing a negative output gap:

• A) people and capital are unemployed.
• B) the economy may be in a recession.
• C) there is little inflationary pressure due to low demand.
• D) All of these statements are true.

Know the measures of risk including variance, standard deviation, and the coefficient of variation.

Understand the impact of risk aversion on investment decisions and market outcomes.

Recognize the relevance of the Capital Asset Pricing Model (CAPM) in evaluating investments.

Understand the difference between systematic and unsystematic risk and their implications for investment strategy.

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Definitions:

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used, hindering problem-solving.

Inner Motivation

The personal drive to do something that comes from within an individual, rather than from external pressures or rewards.

Dogmatic Thinking

An approach to understanding the world that involves strong beliefs or doctrines that are not open to question or skepticism.

Categorical Thinking

The process of organizing information by grouping similar objects, concepts, or experiences into categories or “buckets” in our minds.