When an Economy Is Experiencing a Negative Output Gap, There

question 105

Multiple Choice

When an economy is experiencing a negative output gap, there is:

• A) deflationary pressure due to low demand.
• B) inflationary pressure due to high demand.
• C) a reduction in purchasing power caused by an inflation rate that is higher than the nominal interest rate.
• D) an increase in inflation that puts it at a higher level than output.

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Definitions:

Use of Cash

Describes the various ways a company or an individual applies their available cash, including operations, investments, and financing activities.

Price/Earnings Ratio

A valuation metric that compares a company's current share price to its per-share earnings, often used to gauge if a stock is over or undervalued.

High P/E Ratio

Indicates that a company's stock price is high relative to its earnings per share, suggesting that investors may expect higher earnings growth in the future.

Earnings Per Share

A company’s net income divided by the number of its outstanding shares, indicating the portion of a company’s profit allocated to each outstanding share of common stock.